PEOPLE IN ORGANISATION: ORGANISATIONAL STRUCTURE, CENTRALISATION & DECENTRALISATION

When studying the topic of organisational structure, students need to focus on the following.

• Know the different types of organisational structure - hierarchical (which refers to functional and divisional structure) and non-hierarchical (which matrix structure)
• Appreciate what tall and flat organisational structure are and their effects on business responsiveness
• Understand the advantages and disadvantages of each organisational structure
• Understand how hierarchical structure can become a barrier to effective communication
• Understand the advantages and disadvantages of centralisation and decentralisation 
• Understand the concepts of chain of command, line of reporting, and span of control

Questions on organisational structure: Ramos Sugar Corporation Q5 (9707/31/M/J/14), Global Media Corporation Q1  (9707/31/M/J/13), Patel Bicyles Q1 (9707/31/M/J/12)

ADVANTAGES OF CENTRALISATION

One significant benefit of centralisation is its potential to achieve operational efficiency by eliminating redundancy.  This can subsequently cost saving benefits.

The other advantage of centralisation is to provide consistency to the organisation.  This is necessary for brand building purposes as consistent marketing practices help the target audience to easily become familiar with the company's brand and create strong reinforcement into the their memory.

Furthermore, if centralisation is used for the purpose to achieve standardisation, it is possible for the company to gain the benefits of economy of scale such as centralising the procurement function which allows a company to order at a larger quantity of supplies that can later be distributed to factories or retail outlets situated at different countries.

To understand better on the benefit of centralisation, read this - Nestle: Daring, defying, to grow (Economist.com, 2004).  Do let me know what you think after reading this article.

ADVANTAGES OF DECENTRALISATION

Very much like delegation, decentralisation can have the potential to promote motivation and satisfy the ego and self-actualisation needs of individuals at the lower level of the organisational hierarchy.  In addition, it can provide job satisfaction to managers within the lower layer by giving them recognition (which is resulted from the acknowledgement of the top management of the lower level managers' capability to handle additional responsibility) and responsibility (which they can express their potential). Also, through decentralisation, it make the work itself more challenging and interesting for the lower level managers to perform which subsequently help provide greater job satisfaction and help promote employee retention.

Note: Recognition, responsibility and work itself are considered motivator factors under Herzberg's Two Factor Theory.

In addition, decentralisation can help make the business more responsive as decision can be made faster without having it go through a long communication channel to get the attention and approval of the top management.  It overcomes the problem of bureaucracy which is often inherent in large organisations as more layers of management will have to be incorporated as the organisations grow. 

Another benefit of decentralisation is allowing those who are closer to the operational environment Ii.e. the local or junior manager) to make decisions which may be more relevant when compared to the managers on top who may be lacking in awareness.  Moreover, decentralisation is particularly helpful when practiced by multinational companies operating in a heterogeneous market in order to support their localisation approach.  The local country managers will have more knowledge about their market environment of the country they are operating in.

Furthermore, as decentralisation provides the opportunity for lower level managers to have the power to make more decisions independently, this can help groomed them to take on higher positions in the future. As such, decentralisation can help prepare managers to move upward in their career path and have an easy transition.

Note: To discuss the disadvantages of decentralisation, just consider reversing the advantages of centralisation to find the negatives.

Additional References:

• The Advantages of Centralized Organizational Structure (Chron)
• The Advantages of Decentralized Organizational Structure (Chron)
• Centralised versus Decentralised Structures (Tutor2u)

ASSIGNMENT

Do this question - Genco Oven Q5 (9707/32/O/N/15). 

Tips: To effectively answer this question which require students to discuss the appropriate change to Genco Oven's (GO) organisational structure, they have to take into account of the GO's decision to enter into the consumer market (where the firm was mainly producing ovens to sell to business customers) and expand into Country Y.  

Divisional structure will most likely be the appropriate choice but the question is what to be divided.  It is possible for students to draw the proposed organisational structure to support their answer; however, they should not spend too much time in doing this.

A good answer may see students making discussion of whether the external environment of Country Y is similar to or different from the country which GO is currently operating in.  This can have a significant influence on your proposed change of the organisational structure.  Try to make reference to the concept of standardisation and localisation (which are concepts covered in International Marketing).

In order to show effective application, students are encouraged to make reference to the information provided in Appendix 2.

The other consideration is whether GO should retain the practice of centralised authority or whether it should decentralise.  Whatever answer you give, you have to give justification based on the context of the case.  Here you can use your understanding of the advantages and disadvantages of decentralisation and centralisation.  

Do take note that not everything has to be decentralised.  As such, you should specifically state what decisions can be made by the managers at the lower hierarchy of the organisational structure and what decisions should be retained by the top management.