In an organization decision making authority is concentrated at the top level of management

1. How can the degree of centralization/decentralization be altered to make an organization more successful?

The optimal span of control is determined by the following five factors:

1. Nature of the task. The more complex the task, the narrower the span of control.
2. Location of the workers. The more locations, the narrower the span of control.
3. Ability of the manager to delegate responsibility. The greater the ability to delegate, the wider the span of control.
4. Amount of interaction and feedback between the workers and the manager. The more feedback and interaction required, the narrower the span of control.
5. Level of skill and motivation of the workers. The higher the skill level and motivation, the wider the span of control.

The final component in building an effective organizational structure is deciding at what level in the organization decisions should be made. Centralization is the degree to which formal authority is concentrated in one area or level of the organization. In a highly centralized structure, top management makes most of the key decisions in the organization, with very little input from lower-level employees. Centralization lets top managers develop a broad view of operations and exercise tight financial controls. It can also help to reduce costs by eliminating redundancy in the organization. But centralization may also mean that lower-level personnel don’t get a chance to develop their decision-making and leadership skills and that the organization is less able to respond quickly to customer demands.

Decentralization is the process of pushing decision-making authority down the organizational hierarchy, giving lower-level personnel more responsibility and power to make and implement decisions. Benefits of decentralization can include quicker decision-making, increased levels of innovation and creativity, greater organizational flexibility, faster development of lower-level managers, and increased levels of job satisfaction and employee commitment. But decentralization can also be risky. If lower-level personnel don’t have the necessary skills and training to perform effectively, they may make costly mistakes. Additionally, decentralization may increase the likelihood of inefficient lines of communication, competing objectives, and duplication of effort.

Several factors must be considered when deciding how much decision-making authority to delegate throughout the organization. These factors include the size of the organization, the speed of change in its environment, managers’ willingness to give up authority, employees’ willingness to accept more authority, and the organization’s geographic dispersion.

Decentralization is usually desirable when the following conditions are met:

• The organization is very large, like ExxonMobil, Ford, or General Electric.
• The firm is in a dynamic environment where quick, local decisions must be made, as in many high-tech industries.
• Managers are willing to share power with their subordinates.
• Employees are willing and able to take more responsibility.
• The company is spread out geographically, such as Nordstrom, Caterpillar, or Ford.

As organizations grow and change, they continually reevaluate their structure to determine whether it is helping the company to achieve its goals.

concept check

1. What are the characteristics of a centralized organization?
2. What are the benefits of a decentralized organization?
3. What factors should be considered when choosing the degree of centralization?

Summary of Learning Outcomes

1. How can the degree of centralization/decentralization be altered to make an organization more successful?

In a highly centralized structure, top management makes most of the key decisions in the organization, with very little input from lower-level employees. Centralization lets top managers develop a broad view of operations and exercise tight financial controls. In a highly decentralized organization, decision-making authority is pushed down the organizational hierarchy, giving lower-level personnel more responsibility and power to make and implement decisions. Decentralization can result in faster decision-making and increased innovation and responsiveness to customer preferences.

Glossary

official hierarchy of authority that dictates who is in charge of whom within the organization

The levels of management within a business organization, from the lowest to the highest

process of organizing employees into groups or units to accomplish specific organization goals

The number of subordinates under the direct control of a manager or supervisor

organizational structure that combines employees from different parts of the organization; often used for special projects

organization with multiple layers of management between top executives and front line employees

organization with few layers of management between executive level and the lowest level

an organization that has contact people at the top and the chief executive at the bottom of the organization chart

The structure that details lines of responsibility, authority, and position; that is, the structure shown on organization charts

personnel whose positions are typically advisory and/or facilitative in nature

The shared values, symbols, rituals, beliefs and traditions of an organization

structure in which authority and responsibility move from top to bottom and each employee reports to only one manager

The reorganization of a company in order to achieve greater efficiency and adapt to new markets

organization structure in which decision making and authority are concentrated at top levels of the firm

organization structure in which authority and decision making is delegated to the lower levels of the firm

organization structure that temporarily networks replaceable firms that join together and leave as needed

employees who are part of the chain of command that is responsible for achieving organizational goals

young people who have grown up using the Internet and social networking

Those functions that the organization can do as well as or better than any other organization

comparing a firms processes and performance to the world's best and/or best practices from other industries

The increase in efficiency of production as the number of goods being produced increases

management structure with many layers of management, a high degree of formalization and job specialization

The actual time during which a process or event occurs

using communications technology and other means to link organizations and allow them to work together on common objectives

Cross functional self managed teams

groups of employees from different department who work together on a long term basis

organization (corporate) culture

widely shared values within an organization that provides unity and cooperation to achieve common goals

Both Henri Fayol and Max weber studied the principles of what?

When decision making authority is concentrated at the top levels of an organization the organization is said to be?

What means that decision making authority is delegated to lower

What puts authority in one place with top management?

What is the line of authority that moves from the top of the hierarchy to the lowest level?