COURSE: ORGANIZATIONAL DESIGN & DYNAMICS

COURSE CODE: BUAD 831

QUESTION
a) Explain centralization and decentralization in relation to manager’s job.
b) List any three factors that affect centralization of work in organizations?  
c) As a specialist in organizational design and dynamics, discuss how you deal with those three
factors.

a) Explain centralization and decentralization in relation to manager’s job.

Centralisation refers to the hierarchical level within an organisation that has authority to make
decisions. When decision making is kept at the top level, the organisation is centralised; when it
is delegated to lower organisational levels, it is decentralised (Daft, 2010: 17).
Centralization is the degree to which decision making takes place at upper levels of the
organization. If top managers make key decisions with little input from below, then the
organization is more centralized. The more lower-level employees provide input or actually
make decisions the more decentralization there is. An organization is never completely
centralized or decentralized.
Centralization is said to be a process where the concentration of decision making is in a few
hands. All the important decision and actions at the lower level, all subjects and actions at the
lower level are subject to the approval of top management. According to Allen, “Centralization”
is the systematic and consistent reservation of authority at central points in the organization. The
implication of centralization can be :-

• Reservation of decision making power at top level.

• Reservation of operating authority with the middle level managers.
• Reservation of operation at lower level at the directions of the top level.
Under centralization, the important and key decisions are taken by the top management and the
other levels are into implementations as per the directions of top level.

Decentralization is a systematic delegation of authority at all levels of management and in all of

the organization. In a decentralization concern authority in retained by the top management for
taking major decisions and framing policies concerning the whole concern. Rest of the authority
may be delegated to the middle level and lower level of management.
Decentralization means diffusion of authority. The dispersal of the authority of decision-making
to the lower level management is termed as decentralization. Decentralization of authority is a
fundamental phase of delegation and the extent to which authority is not delegated is called
centralization.
Decentralization refers to the dispersal of decision making power to the lower level of the
organization.

‘Decentralization refers to the systematic effort to delegate to the lowest levels all authority
except that which can only be exercised at central points’. – Louis A. Allen
"Decentralisation allows and encourages rapid managerial response to local or product-specific
problems (Johnson et al., 2008)."
Centralized management is the organizational structure where a small handful of individuals
make most of the decisions in a company.
Centralization of authority refers to the concentration of decision making power at the top level
of management. All important decisions are taken at the top level. Everything which goes to
reduce the importance of subordinate is called centralization.

In a centralized design, each manager has authority over a wider range of employees,
departments and business functions. Management styles can become autocratic in centralized
structures, as managers find themselves with less time to interact with individual subordinates.
In decentralized designs, each manager is responsible for fewer employees and job functions,
and numerous managers may share the same job titles and responsibilities in different areas of
the business. Decentralized structures allow managers to make decisions on a smaller scale,
which can be ideal for situations in which individual teams must adapt to unique workplace
conditions, such as in direct sales.
In centralized organizational structures, decisions are made at the top and communicated down
through the layers. Middle and lower level managers do make decisions; however, they usually
are limited to determining how to implement the orders handed down to them.
Decentralized structures are the exact opposite. Lower level managers and even front-line
employees have the ability to make strategic decisions for themselves and their work groups,
and information on their decisions is reported to higher levels of management.

b) List any three factors that affect centralization of work in organizations?  

(1) Size of the organization may refer to the number of branches the organisation has or even the
number of its employees. The size of an organisation will determine the urgency of decision
making and hence determine whether to employ a centralized organisational structure,a
decentralized one or both. Small organizations that have only one branch employ the centralized
organisational structure. This is because this organisations have a relatively small number of
employees and involves relatively few job activities. This therefore eliminates the need for a
large number of managers and hence a centralized organisational structure is preferred. Large
organisational such as multinationals which have several branches in different parts of a country,
different countries or even continents employ a decentralized organizational structure. This is so
as to ensure timely decision making to keep the organization running and ensure favourable
competition with its competitors.

(2) Proximity of the branches: some organizations are localized where their branches are found
in the geographical location or country while others have branches in different countries or even
continents. The organizations that have branches in the same country or geographical location
may employ the centralized organisational structure. This is because any policies, strategies and
plans agreed upon by the top managers or the board of management can be easily and timely
relayed to the branches. On the other hand, multinationals employ a decentralized organizational
structure. Take the example of a multinational that distributes its products and has branches in
three continents: Asia, Africa and Europe. If the head office of this multinational is found in
Europe and it employs a centralized structure, then all decisions concerning any issues that affect
any of the branches would have to be consulted with the top management in Europe. This would
induce a time lag into decision making which would negatively impact the organization. This is
basically why multinationals employ a decentralized organizational structure. A decentralized
organizational structure ensures timely decision making, increased interest and enthusiasm in the
decision making process and the decisions made are well adapted to the local conditions since
the decision makers are well conversant with the local situation.

(3) Decisions vary in nature where some are about the policies and objectives of the organization
while other relate the operations of the organization and others are about the routine activities of
the organization. The nature of the decision to be made is one of the factors that determine
whether to employ a decentralized or centralized organisational structure. There are some
decisions which are considered very important while others which are fairly important to
organizations. Important decision are those that involve high risks such as the production of a
new product by a manufacturing company, high costs such the purchase of a new warehouse and
those which have great implication on the organization such as relocation. These decisions are
only made by the top managers since they require a

lot of accountability in case events do not conform to plans or they negatively impact the
organisation. The fairly important decisions are those that involve routine and low risk activities.
These activities are therefore delegated to subordinates since they do not far reaching
consequences on the organisation.

The decision to employ a centralized organisational decentralized organizational structure will

also depend on the availability of the required personnel. When a new position is created in an
organization there are qualifications which are matched with the position. The applicants to the
position must have those qualifications. To fill the new position, the organization may decide to
invite applicants through a vacancy announcement or promote a member of their current staff to
the new position. This is what happens when an organisation decide to decentralize some of the
job activities. The person assigned to the position must be trained, skilled, competent,
knowledgeable and experienced to handle the issues of the decentralized units. If the
organization is able to get a person with the required qualifications to fill the position then
decentralization is possible. However if the organization is unable to get a suitable candidate,
then centralization remains in place.
c) As a specialist in organizational design and dynamics, discuss how you deal with those three
factors.
Organizational design is dictated by a variety of factors, including the size of the company, the
diversity of the organization’s operations, and the environment in which it operates.
Considerations of the external environment are a key aspect of organizational design. The
environment in which an organization operates can be defined from a number of different angles,
each of which generates different structural and design strategies to remain competitive.
Organizational design can be defined narrowly as the strategic process of shaping the
organization’s structure and roles to create or optimize competitive capabilities in a given
market. This definition underscores why it is important for companies to identify the factors of
the organization that determine its ideal structure most specifically the size, scope, and
operational initiatives of the company.
Company size plays a particularly important role in determining an organization’s ideal structure:
the larger the company, the greater the need for increased complexity and divisions to achieve
synergy. The organizational structure should be designed in ways that specifically optimize the
effort and input compared to output. Larger companies with a wider range of operational
initiatives require careful structural considerations to achieve this optimization.

References
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Singh, K. (2015). What is Centralization and De-Centralization of the Authority? | Total MBA
Guide. [online] Mbaofficial.com. Available at: http://www.mbaofficial.com/mba-courses/
principles-of-management/what-is-centralization-and-de-centralization-of-the-authority/ [Access
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