All companies begin as centralized organizations. This is a function of size. Small companies may never leave the centralized structure, while larger companies eventually find that they are too unwieldy to function effectively in a centralized manner, and so they move to a decentralized structure. Historically, these movements have followed an evolution in the company itself, with the first moves toward decentralization happening as companies established facilities in more than one location. Sometimes, even the existence of just an off-site warehouse could lead to decentralization. Today, companies are taking a strategic look at whether they are centralized or decentralized, and what system is best for them. Instead of relying on the natural course of business to make the decision for them, companies are building the centralization decentralization issue into their corporate climate to the point that it becomes an integral part of the corporate culture. This research examines the issue of centralization versus decentralization, and how companies can take advantage of one of these structures.
Centralization is characterized by a central decision making group which sets the goals and objectives for the company as a whole. A typical organization chart of a centralized company has the president at the top and functional vice-presidents (sales, finance, product development, human resources and so on) reporting to him. Below the vice-presidents are managers for various divisions of each department, and below the managers are supervisors for individual groups within the division. There may be additional or fewer layers of management depending on the exact organization in question, but centralized companies tend to have more layers of management than decentralized companies (O'Toole & Bennis, Summer 1992, p. 74).
These additional management layers come about in part because of the vast amount of information which must be passe...