Factors affecting centralization and decentralization
The way in which the exertion of power takes place affects the operational nature of an institution. Centralization and decentralization exist as two diverse systems of the exercise of power. Centralization entails the systematic reservation of authority based at a central point. Decision making and control of an entity arise from the top management. In such a model, the mode of communication mostly adopted is the vertical or top-down mechanism. On the other hand, decentralization allows for delegation of authority to the lowest levels except for that designated for top management. Thus, the following factors influence the form of the structure an entity will utilize.
Size -organization structure in terms of employee numbers and functions, influence the adequacy and urgency of diverse decision-making processes. The flexibility to handle issues affect whether to exercise decentralization or centralization. In most instances, organizations that are large in size utilize decentralization as small-sized entities make use of centralization.
Nature of functions– the type of functions carried out by an institution influence the form of authority to exercise. Functions such as sales and production require decentralization while finance and research efficiently employ centralization. Additionally, the history of an entity on its operations and partnerships affect centralization and decentralization uptake. The establishment of an organization drives how authority gets executed.
Environmental influence– external factors affect operationalization of authority. For example, the government sets policies that govern different entities which in turn influence the degree of decentralization or centralization of a business. Apart from the government, the market, competition, technology and globalization play as external pressures to either centralize or decentralize.
The management philosophy– the extent of decentralization of authority largely depends on the character of top executives. These are the people that run an institution and their decisions matter in the form of authority to be executed. Organization philosophy also guides operations and work relations
Competency of the manager’s– availability of managerial manpower and the cost of human capital on the organization limit the level of decentralization of authority. Most firms would be in favor of centralized authority to avoid extra labor costs of hiring managers. Moreover, centralization only requires few highly competent individuals, unlike decentralization that would attract incompetent people.
Organizational culture– this influences the control techniques identical to a particular firm. A firm’s culture defines the formal structure and work relations. Further, the culture affects the pace to which an entity responds to change. A delegation of duties and authority also get affected by the organization culture set with an entity.
Decisions– the timeframe and importance of decisions influence the response of firms to available opportunities. Decision making is a crucial factor in any entity thus requires individuals fit for such roles. In essence, firms undertake risky ventures that require careful analysis prior to execution. Hence, this determines whether to delegate duties to subordinates or preserving it to the top management.
In conclusion, the choice of the form to use in disseminating authority greatly depends on the above-mentioned factors. These factors include but not limited to size, nature of functions, environment influence, management philosophy, competency of managers, organizational culture and decisions of an organization. Regardless of the model to employ, one should take into consideration the mentioned factors. The factors lay a blueprint for an efficiently run organization from behavioural aspects, communication, decision-making, and performance.
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