Decentralised and centralised businesses

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  • Created by: AnnabelH
  • Created on: 16-03-16 12:57

One main thing a business needs to decide is where decison making power is located within the business structure.

The choice between centralised or decentralised is not an either/or choice. Most large businesses necessarily involve a degree of decentralisation when it starts to operate from several locations or it adds new business units and markets to enable easy decison making. 

CentralisedThe concentration of managment and decison making power is located at the top of a a businesse hierachy, and are handled strictly at the top or the executive level. 

Advanatges to centralised businesses 

  • Easier to implement common policies and practices for the whole business - ensure the whole business is working towards the same goal and can save money by implementing standardised procedures for the whole bsuiness
  • Prevents other parts of the business from becoming too independent - Work as a whole business
  • Easier to co-ordinate and control from the centre - for example with budgets
  • Much quicker usually - easier to show a strong leadership
  • Experienced senior managers make decisons - more likely to be benerficial to the company as a whole
  • Strong leadership can be important for smaller businesses and to ensure that everyone is working effectively and at a cost effective rate - management know exactly what is going on throughout the business
  • Only a few people need to be trained to manage the business - reduces expensive training costs that are present when decion making is dispersed throughout the business. 
  • Can work well as a whole unit as opposed to individual segments. 

Disadvanatges to centralised businesses

  • Staff may be poorly motivated as they have no control over decions made within the business - dont feel valued within the business 
  • Local or junior managers may be much closer to customer needs and therefore might make more productive decisions
  • Decions may not be correct for the entire business - certain parts of the business may be better off with other decisions
  • Lack of authority down the hierachy may reduce

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