d up and down the organization. In a centralized structure, resources are shared across divisions and departments, and close communication is required to shift resources away from one area and into another where they may be more productively used. Each division competes, to some degree, with every other division, and the entire company's performance is given priority over the performance of any one department. There emerges from this structure some advantages, including economies of scale, that decentralized operations may not be able to realize. For example, a company which has centralized purchasing designed to meet the needs of the organization as a whole is able to take advantage of quantity and price discounts that would not otherwise be available. If individual departments did their own purchasing, the company's aggregate purchasing expenditures would exceed the amount spent through centralized purchasing.
However, there is a point at which the organization becomes too large to fully benefit from these economies of scale. There can be a loss of communication in large companies, and the centralized purchasing example may not work as well. For example, while centralized purchasing may result in lower overall price, the cost to the company may be greater. This result can come about as some departments are unable to requisition the exact part that they need, but instead must make do with the part that the central purchasing department has negotiated with a specific vendor. This can lead to rework and quality problems that would not otherwise plague the company. When the bureaucracy required to support a centralized organization becomes too large, such problems can develop.
Centralized operations are also favored by companies which require large amounts of internal funding in order to develop new projects. If the company is run on a centralized basis, the funds for these new projects can come from throughout the organi...