Degree of Centralization

In a centralized organization, managers make most decisions, even the relatively small ones. Centralization of authority is the location of most authority at the upper levels of the organization.

Decentralization is the location of a significant amount of authority in the lower levels of the organization. An organization is decentralized if it has a high degree of delegation at all levels. In a decentralized organization, workers closest to problems are authorized to make the decisions necessary to solve the problems on their own.

Decentralization has a number of advantages. It develops employee capabilities throughout the company and leads to faster decision making and more satisfied customers and employees. Overall, just 10 percent of employees received the training and information needed to support a truly decentralized approach to management.

With results like these, the key question is no longer whether companies should decentralize, but where they should decentralize. One rule of thumb is to stay centralized where standardization is important and to decentralize where standardization is unimportant. Standardization is solving problems by consistently applying the same rules, procedures, and processes.