DECISION MAKING IN ORGANIZATIONAL STRUCTURE

CENTRALIZED ORGANIZATIONAL STRUCTURE Centralization is the process of transferring and assigning decision-making authority to higher levels of an organizational hierarchy. Centralized organizational structures rely on one individual to make decisions and provide direction for the company. Small businesses often use this structure since the owner is responsible for the companys business operations. It is a setup in which most power and critical decision making responsibilities are concentrated with a few key leaders and it often houses its primary decision makers or executives in a central headquarters with offices and meeting areas for leaders to discuss business. In centralized organization, the decision-making has been moved to higher levels or tiers of the organization, such as head office or corporate center. Knowledge, information and ideas are concentrated at the top and decisions are cascaded down the organization. Some functions like finances, accounting, data processing of statistics and purchase of capital equipment are likely to be centralized. Advantages of Centralization: Focused Vision o Vision is a key trait of effective leadership and having a more centralized structure keeps all levels of an organization focused on one vision or purpose. This prevents potential inconsistency in vision and helps companies deliver a common message to customers and communities. Fast Execution o With fewer people involved in discussing and deciding on strategy and action, centralized organizations typically react more quickly to a dynamic marketplace. Once decisions are made, top managers send out directives to lower levels for implementation as directed.

Reduced Conflict o With top managers taking the responsibility of making and implementing critical decisions, they insulate other managers and leaders from the burden of making risky or unfavourable decisions.

Control and Accountability o When centralized leaders are in charge of all major decisions, they retain more control over operation of the company and

development of its culture. Characteristics of Centralization: Philosophy/ emphasis on: top-down control, leadership, vision, strategy Decision-making: strong, authoritarian, visionary, charismatic Organizational change: shaped by top, vision of leader Execution: decisive, fast, coordinated, able to respond quickly to major issues and changes Uniformity: low risk of dissent or conflict between parts of the organization

Disadvantages of Centralization: It can suffer the negative effects of bureaucracy Business owners may require more time to accomplish tasks, which can result in sluggish business operations.

DECENTRALIZED ORGANIZATIONAL STRUCTURE Decentralization is the process of transferring and assigning decision-making authority to lower levels of an organizational hierarchy. Decentralized organizational structures often have several individuals responsible for making business decisions and running the business. In this structure, individuals at each level in the business may have some autonomy to make business decisions.

Decentralization is a type of organizational structure in which daily operations and decision-making responsibilities are delegated by top management to middle and lower-level managers within the organization, allowing top management to focus more on major decisions. Knowledge, information and ideas are flowing from the bottom to the top of the organization. Advantages of Decentralization: It increases morale and promotes interpersonal relationships. o When people have a voice in governance, they feel more important and are more willing to contribute. This provides a feeling of individuality and freedom. It fosters informality and democracy in management and brings decision making closer to action. o Thus decisions may be more effective, because the people who know the situation and have to implement the decisions are the ones who make them. Flexibility is increased and reaction time is decreased. Fewer people have to exchange information, communications are swift and effective. It helps determine accountability.

Characteristics of Decentralization: Philosophy/ emphasis on: bottom-up, political, cultural and learning dynamics Decision-making: democratic, participative, detailed Organizational dynamics Execution: evolutionary, emergent, flexible to adapt to minor issues and changes Participation, accountability change: emerging from interactions, organizational

Disadvantages of Decentralization: Top administrators may feel that it would decrease their status. An increased awareness of division consciousness and a decrease in company consciousness may develop. It involves increased costs. Functions are likely to be duplicated between divisions and headquarters. Division managers may not inform top management of their problems. Decentralized organization can struggle with multiple individuals having different opinions on a particular business decision.

MATRIX SYSTEM A matrix system/ organization structure is designed to focus on both project and function. Function is described as all the tasks required to produce the product and the product is the end result of the function. In matrix structure, each employee answers two immediate supervisors; the functional supervisor which is in charge with overseeing employees in a functional area such as marketing or engineering and the project supervisor which is in charge in managing a specific and often impermanent project. In functional organization, the functional manager has the authority to determine and rate goals, select personnel, determine pay and promotions, make personnel assignments and evaluate personnel and the project. The project manager uses people assigned to functional areas to complete the project while they are still assigned to the functional area. The matrix organizational structure has a formal vertical and horizontal chain of command. Advantages of Matrix System: Resource Coordination o The matrix structure allows supervisors to focus on their areas of expertise. Functional supervisors focus on hiring, training and

managing employees in their field, while project supervisors can focus on achieving the goals of their specific projects or products.

Specialization o Placing employees in functional areas allows them to specialize in a particular field. Instead of being good at a variety of tasks, specialized employees can excel at tasks in their field of focus.

Breath of Skill o In a matrix structure, employees have constant contact with members of other functional areas via their membership in project teams. Through the project team, employees have the opportunity to develop a wider set of skills than they would in a purely functional structure.

Communication o The matrix structure allows for information and resources to travel more fluidly between those functional areas. The collaboration between functional areas allows a project team to better handle complex challenges and objectives.

Flexibility o The matrix structure allows for human resources to be shared flexibly across different projects or products. Functional areas maintain a stock of talented employees to meet projects' requirements.

Disadvantages of Matrix System: Decision making can be slow Some personnel may get frustrated and feel insecure Stress

Specialists with several bosses Project managers requiring several specialists or shared specialists Functional managers providing shared specialists Sacrifice of territorial incentive

LIMITATIONS OF ORGANIZATIONAL CHART 1. Shows only formal relationships Does not show the informal structure of the organization. Informal structure employees interpersonal relationships, formation of primary and secondary groups, and the identification of group leaders without formal authority. Also known as grapevine, or informal structures communication channel. Informal structures is important because they provide workers with a feeling of belongingness, facilitate or sabotage planned change in organization, and evolves social activities that developed outside the work environment 2. Does not indicate degree of authority Equating status with authority frequently causes confusion. Distances from the top of the organizational hierarchy usually determine the degree of status: the closer to the top, the higher the status. People frequently have status with little accompanying authority. 3. May show things as they are supposed to be or used to be rather than as they are Organizational chart becomes obsolete very quickly because organizations are dynamic environment. Depicts how things are supposed to be, when in reality, the organization is still functioning under an old structure because employees have not yet accepted new lines of authority. 4. Possibility exists of confusing authority with status Although it defines authority, it does not define responsibility and accountability Authority the official power to act. Power given by the organization to direct the work of others.

Responsibility Duty or an assignment. Implementation of a job. Accountability similar to responsibility but internalized. Being accountable means that individuals agree to be morally responsible for the consequences of their action.