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If it is decentralized a greater degree of authority is given to staff and divisions. In a decentralized company the divisions will have wider responsibilities and authority. However Sloan did not give the divisions complete freedom.



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When we talk about centralized and decentralized businesses, we mean the extent to which authority has been delegated to lower levels or divisions of an organization.

When an organization is centralized, a limited amount of authority is delegated. If it is decentralized, a greater degree of authority is given to staff and divisions. For example, in a centralized company, Head Office may make most of the decisions concerning recruitment, the purchase of equipment and product lines. It may also be responsible for areas such as advertising, promotion and research and development.

In a decentralized company, the divisions will have wider responsibilities and authority. Divisional managers will have authority to purchase expensive equipment and authorize substantial salary increases. In decentralized organizations, more important decisions can be made at lower levels. There are fewer controls from Head Office.

To sum up, a centralized business has a 'tight' structure, whereas a decentralized business has a 'looser' structure.

However, no enterprise chooses complete centralization or decentralization. In practice, it tries to find a balance between the two forms.

For example, when Alfred Sloan, an outstanding figure in the business world of America, took over the running of General Motors, it was a decentralized corporation. However, Sloan did not give the divisions complete freedom. He wanted Head Office to coordinate action, keep control over the units and control finance more tightly. Alfred Sloan set up a new, centralized cash system. Head Office controlled things like cash, capital expenditure, stock control and the profitability of divisions. But the divisions had a great deal of autonomy, being responsible for designing, making and marketing the cars. So, his top managers worked out a balance between central control and delegated authority.

Nowadays, decentralization is the fashion, the 'buzz' word. Believers in decentralization say that it helps to 'develop people' because staff get more responsibility, make more decisions, and so gain experience for later managerial positions. In contrary, if an organization is too centralized, people become robots. Decentralization allows top managers to delegate jobs, so these managers will have more time to work on setting goals, planning corporate strategy and working out policies. The strongest argument for decentralization is that, in competitive conditions, the 'looser' companies will be more flexible, better able to make quick decisions and to adapt to change.


Excellent companies know how to balance control and delegation; they have 'loose-tight' characteristics. On the one hand, they have a simple structure, generally based on product divisions which also have great autonomy. These divisions have control over functions like product development, purchasing, finance, personnel etc. On the other hand, the center of these excellent companies - top management - provides 'firm central direction'. It continually stresses the 'core values' of the organization, e.g. quality, need for innovation, service, and informal communications and so on. These central values provide the context within which staff can be creative, take risks — even fail.