Centralisation and De-centralisation of Management
Centralisation and de-centralisation are terms which are concerned with the extent to which control of certain business functions are taken from senior managers in 'head office' and how much is delegated to subordinates, allowing them to make their own decisions. In a completely centralised business, all decisions would be taken by senior managers, with those below them having no say. In a completely de-centralised business, subordinates would be free to make all the decisions. Whilst virtually all companies are closer towards centralisation than de-centralisation, as it is the senior managers that make most of the big decisions, most also operate on a mixture of centralisation and de-centralisation for the reasons discussed below.
Even if decisions are delegated to subordinates, managers are likely to retain responsibility and be able to overrule any decisions they do not approve of. Some decisions will almost certainly be taken by central management, such as budget allocation, which affects the company as a whole.
Advantages of Management Centralisation
The advantages of centralising management decisions include senior management having more control of the business and being able to make decisions which benefit the entire organisation, whereas subordinates are likely to make decisions and implement strategies which benefit their own particular area.
- Centralised management are able to share out limited funds to the most appropriate area, taking some from parts that are already performing well to those which need more investment and improvement.
- Procedures can be standardised between departments instead of each one developing its own method of working. This can not only reduce costs that would be incurred from duplication, but also makes things easier for both staff and customers if they get used to doing things in a certain way.
- Senior managers are likely to have acquired that position because they are experienced at managing a firm and have the managerial skills necessary to guide the company through good times and bad. This is not always the case, as senior managers at some big name firms have managed to screw things up spectacularly in recent years, but generally it will be the case. As such, they are more likely to make the right decisions than a fairly inexperienced junior manager in a department or branch within the business.
- Fewer decision makers means that changes can be implemented and communicated quicker. This more authoritarian style of leadership also reduces the potential for time-consuming arguments as different sections squabble over how to proceed together.
Advantages of Management De-centralisation
Some delegation is inevitable for those businesses with more than a couple of employees, as it is impossible for senior management to do everything themselves. The most common tasks that are de-centralised and delegated out to subordinates are staff recruitment, stock buying, minor renovation and repairs etc. An example would be the manager of a restaurant which is part of a chain can carry out minor renovation and repairs without the need to consult senior managers. Often they will be given a budget at the start of the year and can spend it how they see fit in order to achieve the targets (e.g. sales, customer numbers etc.) that they have been set.
Advantages of de-centralisation include:
- The most obvious advantage is that allowing subordinates to make decisions frees up time for senior management to concentrate on other things. These tasks will vary greatly depend on the nature of the business (central management of a retailer will have different management objectives than a Formula 1 racing team for example), but can be things like developing an advertising campaign, attracting sponsorship, redesigning and standardising the interiors of all of its retail outlets etc.
- Having a degree of responsibility often empowers workers and improves their motivation, as they feel that senior managers trust them and are not watching their every move, waiting for them to make a mistake.
- Subordinates are much likely to have a better knowledge of local conditions than senior managers sat in a head office miles away; sometimes in a different country. They will be able to react to local conditions, as well as take advantage of any nearby events which bring an increase in visitors (i.e. potential customers) to the area that senior managers may not know are taking place.
- Although decisions can be implemented downwards from the top quicker in a centralised structure, decisions which are made by subordinates can be implemented much faster in a de-centralised way of working as permission does not have to be requested from and then responded to by the senior management. Going back to the restaurant example from earlier, the local manager can repair a faulty piece of equipment in the kitchen straight away, enabling the kitchen to get back up to full capacity, without having to wait for a decision from head office.
- As stated earlier, senior managers are likely to have many years of experience in running a business and making decisions. By delegating and giving responsibility to junior managers, it allows them to gain more experience and practice at making meaningful decisions. This develops their management skills faster, even more so when combined with a course like our First Line Manager, and will put them in a position to be promoted to a senior management level when those managers retire.
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