Centralized Vs Decentralized Organizations: Problem Solving & Decision-Making - Strategy Saturday

A centralized organization occurs when the decision-making is performed by the top managers in an organization. Another words, problem-solving and finding solutions often flows to central people within the organization. Managerial decision making and developing a business strategy that finds problems and solves problems by a limited number of people.

A decentralized organization occurs when lower- order employees perform more of the tasks and decisions in an organization. More people perform the decisions and implement tasks in a decentralized organization. We generally put decentralized organization at the opposite end of the spectrum of centralized organizations. It is easier to show that an organization is decentralized if you compare it with an organization that is centralized.

Decentralization is becoming more important in our economy. There are many contemporary examples of decentralized organizations. For example, block-chain is one such form of decentralized organization. No one person makes a decision in this structure. The “FED” is another example of a decentralized organization.

Decentralized decision-making and thinking about centralized organizations is important for all forms of organizations, including government decision-making, and any organization regardless of size.

What are advantages and disadvantages of centralization and decentralization?

Advantages of Centralization (Disadvantages of Decentralization):

Maintaining control: Centralized organizations tend to perform better in terms of maintaining the control of decision-making.

Quality of decision-making: Centralized organization can do a better job of decision-making until a point the environment or the information that is processed by the organization exceeds its capacities. In this circumstance, the organization is generating more problems than solutions that can be solved to fixed those problems.

Faster decision-making: It might be faster to make decisions with centralized form as decision-making. For example, developing the firms mission and vision are quite easy with a centralized organization.

Inefficient resource usage: Centralized organizations often use resources in a more efficient manner.

Disadvantages of Centralization (Advantages of Decentralization):

Implementation and employee empowerment: Decentralized organizations may have an easier time at implementing different decisions, particularly of the decisions were made by the lower employees. Many employees might not buy into the organizations decisions if they were decided by someone else. As a result, while decisions can be made, they might never be implemented.

Information overload: Organizations may require more flexibility to make decisions quickly in case of emergencies or when there is great amount of information that is flowing organization. That is why software is often decentralized. It allows for flexibility in the structure of the organization

Finding problems: Decentralized organizations are often much better at finding problems that need to be solved in the organization. Moreover, because organizational members are motivated, they often are likely to solve these problems.

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[nicolejmm]

currently studying for a test and this video made me understand centralized vs decentralized organizations so much better! thank you!