Deciding in which element of the hierarchical structure the most important decisions should be made is up to the top management of the organization. It defines the shape organizational structure and efficiency of managerial decisions.
As already mentioned above, if the controllability becomes too high, then additional levels of control must be introduced to prevent loss of coordination.
Organizations where leadership top management reserves most of the powers needed to make critical decisions are called CENTRALIZED.
DECENTRALIZED ORGANIZATIONS- these are organizations in which powers are distributed among lower levels of management. Here, middle managers have very large powers in specific areas of activity.
Any organization can be called centralized or decentralized only in comparison with other organizations or in comparison with itself, but in other periods.
The idea of decentralized structures is based on the idea that people are inherently capable of successfully coping with tasks.
Here, it is usually up to the top management to resolve issues of long-term planning, resource allocation, coordination and evaluation of the activities of departments. Lower-level managers are delegated the right to make decisions in areas directly related to the products and services for which they are responsible.
To understand how this organization is centralized compared to others, you can determine the following characteristics:
1. The number of decisions made at lower levels of management.
The greater the number of those decisions that are made by lower-level managers, the greater the degree of decentralization.
2. The importance of decisions taken at lower levels.
In a decentralized organization, middle and lower managers can make decisions related to the cost of significant material and labor resources or direction of the organization in a new direction.
3. Consequences of decisions taken at lower levels.
If lower and middle managers can make decisions that consume more than one business function, then the organization tends to be decentralized.
4. The amount of control over the work of subordinates.
In a highly decentralized organization, senior management rarely reviews the day-to-day decisions of their subordinates. The assessment of their actions is done on the basis of the total results achieved, which should be achieved by this unit.
Centralization and decentralization have their disadvantages and advantages, the ratio of which is determined by external and internal variables.
Benefits of centralization:
1. Improves control and coordination of specialized independent functions, reduces the number and extent of erroneous decisions made by less experienced managers;
2. Avoids a situation where some departments grow and develop at the expense of others or the organization as a whole;
3. Allows more economical and easy use of the experience and knowledge of the staff of the central administrative apparatus.
Benefits of decentralization:
1. Allows you to solve the problem of managing large organizations, where there is a huge amount of information and the complexity of the process and decisions;
2. Gives the right to make decisions to the leader who is closest to the problem that has arisen and, therefore, knows it better;
3. Encourages initiative and allows the individual to identify with the organization
4. Helps prepare a young leader for higher positions by giving him the opportunity to make important decisions at the very beginning of his career. This provides an influx of talented leaders in the organization.
The factors that determine the ratio of centralization and decentralization include the following:
The need for radical change and high levels of uncertainty external environment favors decentralization;
The ratio of centralization and decentralization should be adequate to the strategy;
In times of crisis or the emergence of immediate threats, power, as a rule, is concentrated in the hands of the top management of the organization.
With departmentalization, the question of how to divide the activities of the organization's employees horizontally, i.e. determine the tasks that each structural unit should solve. Another important point building an organization is a division of work along the vertical. Decide, in which element hierarchical structure should be made the most important decisions - the business of the management of the organization. This determines the form of the organizational structure and the effectiveness of management decisions. The leader must delegate to the subordinate such an amount of authority that the latter needs to solve the tasks assigned to him. If the controllability becomes high, then additional levels of control must be introduced to prevent loss of coordination.
Organizations in which senior management retains most of the authority needed to make critical decisions are called CENTRALIZED . DECENTRALIZED ORGANIZATIONS - these are organizations in which powers are distributed among lower levels of management. In highly decentralized organizations, middle managers have greater authority in specific areas of activity.
Degree of centralization In practice, however, there are no fully centralized or decentralized organizations. Such organizations are only limiting points between which lie all the types of structures encountered in practice. The degree of centralization varies from an organization where most of the authority needed to make critical decisions remains at the highest level of management, to an organization where most of these rights and powers are delegated to lower levels of management. The difference is only in the relative degree of delegation of rights and powers. Therefore, any organization can be called centralized or decentralized only in comparison with other organizations or in comparison with itself, but in other periods.
You can understand how centralized an organization is by identifying the following: characteristics:
1. Number of decisions made at lower levels of management . More decisions made by lower-level managers - a greater degree of decentralization.
2. The Importance of Decisions Made at Lower Levels . In a decentralized organization, middle and lower managers can make decisions that require significant resources.
3. Consequences of decisions taken at lower levels . If lower-level managers can make decisions that affect more than one function, then the organization is decentralized.
4. The amount of control over the work of subordinates . In a highly decentralized organization, senior management rarely reviews the day-to-day decisions of their subordinates on the assumption that all these decisions are correct. Evaluation of management actions is made on the basis of the results achieved, in particular, the level of profitability and growth of the organization.
Within an organization, some departments may be more centralized than others.
Speaking about this or that degree of centralization or decentralization, we define the degree of delegation by top management to lower levels of management of decision-making powers in such areas as pricing, product development, marketing and performance of structural units. Even in highly decentralized organizations, management reserves the right to make decisions on issues such as defining the overall goals and objectives of the organization, strategic planning, and formulating firm policy.
Factors determining the degree of decentralization
Decentralized structures have many supporters. This is partly due to the idea that people inherently have the ability to successfully cope with the tasks set, and partly because of the numerous confirmations of the effectiveness of such structures. One of the most compelling pieces of evidence was presented by Peter Drucker. He was one of the first to study the decentralized organization experience: Alfred P. Sloan's decentralization of General Motors. Based on the apparent success of decentralization, Drucker concluded that “the cardinal rule for any organization is to involve least the number of control levels and create the shortest chain of commands.
Most large corporations have a decentralized organization. Their general structure is based on the principle of federal decentralization, in which the heads of the most important departments can act almost autonomously in everything related to their products. However, even ardent supporters of decentralization recognize that it is not the only remedy for every situation. Both centralization and decentralization have their drawbacks.
Benefits of centralization and decentralization
Benefits of Centralization
1. Improves control and coordination of specialized independent functions, reduces the number of erroneous decisions made by inexperienced leaders.
2. Strong centralized control avoids a situation in which some departments of the organization grow and develop at the expense of others or the organization as a whole.
3. Centralized management makes it possible to more economically and easily use the experience and knowledge of the staff of the central administrative body.
Benefits of decentralization
1. It is impossible to centrally manage especially large organizations because of the huge amounts of information required for this and, as a result, the complexity of the decision-making process.
2. Decentralization gives the right to make decisions to the leader who is closest to the problem that has arisen and, therefore, knows it best.
3. Decentralization encourages initiative and allows individuals to identify with organizations. With a decentralized approach, the largest unit of the organization seems small to its leader, and he can understand its functioning, fully control it, and feel like a part of this unit. Such a leader may be as enthusiastic about the division as the entrepreneur is about his entire business.
4. Decentralization helps to prepare a young leader for higher positions by giving him the opportunity to make important decisions at the very beginning of his career. This provides an influx of talented leaders into the organization. At the same time, the terms of promotion to top positions become shorter, and decentralization encourages an ambitious young leader to stay in the company and grow with it.
Structure integration In order to realize the potential of specialization, management needs to introduce into the organizational structure a mechanism for coordinating and integrating all departments. INTEGRATION - this is the process of achieving unity of efforts of subsystems (divisions) of the organization for the implementation of its tasks and goals
The impact of integration on the achievement of organizational goals In order to effectively integrate the organization, management must constantly keep in mind the overall goals of the organization and constantly remind employees of the need to focus efforts precisely on general purposes. It is not enough that each department and each employee of the organization will work effectively on their own. Management should view the organization as an open system. The "health" of the organization as a whole will suffer if the units are not effectively integrated into its overall structure. Moreover, it should be borne in mind that poor integration may begin to affect the effectiveness of the organization only six months or even a year after the situation has arisen.
Methods for achieving effective integration It is important to emphasize that the choice of an appropriate integration method depends on the environment in which the organization has to operate. One of them is to develop appropriate rules and procedures. However, this method is effective only under conditions of a relatively stable and predictable external environment. In organizations operating in a rapidly changing environment, a more effective way to integrate is to establish strong personal ties and relationships, in the expanded use of such organizational forms as committees, ad hoc working groups, commissions and interdepartmental meetings.
The terms centralization and decentralization refer to the political and administrative structure of a country. In a centralized state, power and authority is concentrated in the hands of the central government, which makes decisions and performs most of the functions. Conversely, in a decentralized state, powers and responsibilities are distributed and distributed among regions and districts. While all centralized governments share common features and similar characteristics, not all decentralized countries are the same. In fact, the process of decentralization may vary from country to country and may be implemented in different ways. For example, the degree of autonomy between regions and local governments varies greatly. Both the United States and China use a decentralized approach, but the results are very different. The unified states in the US have a large degree of autonomy, while the Chinese regions remain under strict control of the central government.
In a centralized country, power and authority are concentrated in the hands of the central government, and the regions and local governments have little to no power. In many cases, centralized government is associated with the idea of an authoritarian regime that does not allow for public participation and democracy. However, this is not always the case. Although military and dictatorial regimes try to concentrate power in the hands of a few, there are a few democratic and highly efficient countries, such as Denmark and Norway, that use a centralized model. Centralization has many advantages:
In a decentralized system of power, functions and powers are distributed among local governments and organizations and are not concentrated in the hands of the central government. Power can be divided among regions, provinces, or even cities - each country and each decentralized system has different characteristics, and the degree of autonomy of different areas can vary. Decentralization is often seen as a response to the problems associated with centralized government (i.e. lack of public participation, over-control, economic downturn, etc.). In fact, this system has a number of advantages:
Centralization and decentralization are opposite concepts. In one case, power is in the hands of a few, while in others, powers and functions are distributed among a larger number of players. Despite the various differences between them, we can identify some similar aspects:
Centralization and decentralization are two very different processes that can define a country in different ways. In a centralized state, decision-making becomes the responsibility of a few people and is in the hands of the central government. On the contrary, a decentralized state seeks the participation of local governments and state bodies. However, it is worth noting that a centralized state is not necessarily an authoritarian or despotic state, and similarly, a decentralized system does not necessarily entail a higher degree of public participation. Both systems have advantages and disadvantages, and some of the main differences between them include the following:
In today's world, we can identify many examples of centralized and decentralized countries: Denmark, Norway and the UK fit the first category, while Switzerland, the US and China are decentralized states. Based on the differences outlined in the previous section, we can identify several other features that differentiate the process of centralization from its opposite.
| centralization | decentralization | |
| ethnic diversity | Centralized government often does not take into account the specific needs of small and local communities. Far from the population, decision makers often lose sight of the importance of taking into account ethnic diversity and promoting cultural inclusion and equality. | In a decentralized system, decision makers are often able to guide ethnic minorities and small communities to their laws and bills. A decentralized model can serve a variety of interests better. |
| Participation | A centralized system does not necessarily preclude public participation - although it is easier for the government to take and make decisions without the need for public scrutiny. | A decentralized system is believed to enhance and promote public participation. But this is not always the case - for example, China is a decentralized one-party system in which the communist party strictly controls the population and all public decisions. |
| Conflict resolution | Centralized government can lead to local and regional unrest when local communities are unhappy or oblivious to central politics. At the same time, a centralized government is often in a better position to negotiate with third parties and other countries. | In a decentralized state, social and regional unrest is better handled as decision makers are closer to the general population. However, at the same time, a decentralized government may have less influence on trade and negotiations with third parties and foreign countries. |
Centralization and decentralization are two processes that deeply affect the political, social and economic aspects of the country. In a centralized state, power is in the hands of the central government, but this does not necessarily mean an authoritarian or despotic regime. Many Western democracies use a centralized system to limit duplication and not waste money on useless bureaucratic processes. The centralized state has many advantages (i.e. efficiency, speed, etc.) but at the same time has various disadvantages. The centralization of power is often seen as a reduction in public participation, and centralized government is often blamed for political and economic failures.
In a decentralized state, functions and responsibilities are (not always equally) distributed among regions, cities and local governments. A decentralized system is often considered to enhance public participation and equity, as decision makers are closer to the population and can propose and enact individual laws and bills to meet the specific needs of local communities and minority groups. The process of decentralization may start after a major political and economic crisis, or it may be the result of a clear policy. In fact, various countries, such as the UK or Spain, are increasing the degree of autonomy for local regions and districts in order to ensure equal growth.
Centralization and decentralization are two very different processes, but scholars and practitioners have not been able to determine whether the other is better. Not all centralized countries are the same, and not all decentralized countries are the same. A centralized system is better suited for small countries, while a decentralized model is ideal for large and very different countries such as China or the United States.
While the machines connecting project, energy and materials at the nodes of supply networks were bulky, heavy and expensive (like high-speed printing presses or industrial compact disc burners), they were few and most often located permanently. In this form, they could not cope with the flow of production tasks and become the cause of congestion. Moreover, as oligarchs and Marxist revolutionaries alike know, such machines provide opportunities for acquiring political power by seizing the means of production. However, when miniaturization paves the way for the development and distribution of small, low-cost manufacturing devices (such as laser printer), the capacity of supply networks can easily become redundant. Production can be decentralized and even mobile. Under such conditions, political power can be distributed (and centralized abolished) through the mass production and distribution of such devices.
Consider, for example, the evolution of supply networks for such a modest commodity as ice cubes. Large shipments of frozen water began when large blocks of water were extracted from the rivers and lakes of New England with the help of an ice plow. With the increase in efficiency and coverage of large-capacity transport networks, their delivery over ever longer distances has become possible. From huge storage facilities near the place of extraction, these blocks could even be delivered by cargo ships, for example, to Calcutta, where they were placed in city ice storages, from where they finally reached home glaciers on special carts. By the early 1880s, steam-powered manufacturing plants artificial ice began to compete with exports - especially in hot countries, far from sources natural ice. Such enterprises depended only on local water supply, energy supply and transport networks - they were the first step towards the decentralization of ice production. This was followed by the emergence of electric networks, small electric motors, sealed-case refrigerators, and mass-produced home refrigerators. Once centralized, by the 1950s, ice production had become fragmented and returned to homes. Today, small automated ice makers have become nodes in household electrical and water networks; ice cubes jump right out of the refrigerator door, and the distance from the place of production to the glass has been reduced from thousands of kilometers to several centimeters.
The comparative advantages of centralized and decentralized production are also determined by network capacity, transportation costs and associated losses. For example, steel plants are most often built near iron ore and coal deposits, since transporting raw materials over long distances is much more expensive than delivering less cumbersome end products. The ice factories were located close to the markets, as the ice melted during transport. The first factories of the Industrial Age centered around sources of hydraulic or steam power, as machine tools had to be located within reach of belt drives and other mechanical means used to transmit power. But when the most important networks become ubiquitous and efficient, like today's power grids and the Internet, the importance of distance decreases accordingly: exactly where you connect your personal computer and download a document for printing from the network does not matter much.
The influence of networks is most noticeable, and perhaps most dangerous, in established industries, where mobile, easily replicable software turns a large number of Internet nodes into an overly powerful, geographically dispersed system of production and distribution. When record company lawyers tried to shut down the KaZaA file-sharing network, it was discovered that its developers live in the Netherlands, the programmers live in Estonia, the source code is unknown, the distribution company is based in Australia but is registered in Vanuatu, and the program itself is installed on 60 million computers. Internet users in 150 countries around the world2. In the long run, the established music industry stands no better than the New England ice exporters.
Industrial production has traditionally sought economies of scale. To increase competitiveness, industrialists built large, high-speed machines that produced large batches of standard products at the lowest cost. (The higher the investment, the more intensive the operation of such machines must be.) However, decentralized, personal production is more focused on individual adaptation - on the production of smaller batches of products, often at a higher cost, but more adapted to specific conditions. This is the difference between a newspaper press and a home laser printer.
Individual adaptation of the device is achieved in many ways, in particular by equipping it with many buttons and switches. A good handheld camera, for example, is crammed with gadgets that allow the photographer to pinpoint the finer aspects of an image. A soap camera, on the other hand, efficiently produces a standardized product. Because it doesn't need a lot of controls, it's usually smaller, simpler, and has a cleaner design.
With the acquisition of embedded intelligence devices, new possibilities have arisen: now they can be controlled (or reprogrammed) by sending streams of bits. Thus, a laser printer can print different documents, and an MP3 player can produce different sounds, depending on the input data. At a deeper level, with sufficient skills, you can delve into the built-in software, responsible for interpreting the input data, thus changing the type of product being produced.
On the scale of plants and factories, bulky manual machines were gradually replaced by computer numerical control (CNC) equipment. The first CNC machines read data from a paper tape; today they are controlled directly from the computer. Switching to CNC reduces set-up costs and eliminates the need for constant human supervision, allowing frequent product changes without drastically increasing production costs. Thus, a CNC laser cutting machine can cut a wide variety of shapes from sheet material, and a CNC fusing printer can produce three-dimensional solid objects. By the early 1990s, this trend was reflected in architecture: buildings such as Frank Gehry's Guggenheim Museum in Bilbao were built not from the same blocks typical of industrial age architecture, but from complex, computer-aided design and production of non-repetitive elements3.
Liberator. Photo: Kamenev / Wikimedia Commons
Decentralization is not just a pretty word. Decentralization is the future. She will bring revolutionary changes in finance, technology, politics. What is decentralization? Who will she give more power to? Why should you, as an individual, be interested in this?
The Merriam-Webster Dictionary defines decentralization as "the process of distributing or dispersing function, power, people, or things from a geographic center or center of power." Through decentralization, the decision-making process changes: now decisions move not from top to bottom, but from bottom to top, which gives the individual more opportunities to influence the system.
The theory of decentralization of systems, technologies and political structures has been discussed since the French Revolution. The 19th-century French politician Alexis de Tosqueville proposed that the transition from centralized control be seen as a way to prevent the enslavement of citizens and the encroachment on their freedoms by the bureaucratic state. He believed that those who seek to join forces to create the common good gain much from decentralization.
He was right. Today, disruptive technologies are enabling the creation of decentralized structures on a global scale, allowing individuals and businesses to bring Torqueville's ideas to life. The concept of decentralization often comes up when discussing cryptocurrencies, 3D printing, mesh networks, and the sharing economy. How is decentralization being used today?
Using dollars or euros for settlements, we trust centralized institutions such as the US Federal Reserve or the European Central Bank. We believe that they are pursuing a prudent monetary policy, regulating issuance and combating counterfeiting effectively. The problem is that central bankers are not responsible for poor fund management. For example, Ben Bernanke's assurances from 2006 to early 2008 that there is no threat of a recession or bursting of the housing bubble are notorious. We had to learn the hard way that he was wrong. Was he fired or did he resign himself under public pressure? Nothing like this. He is being hailed as a hero for his trillion-dollar bailout programs, an example of the most risky monetary policy in US history. When there is a monopoly on a certain good or service, market forces cannot provide consumers with the best quality good or service. We do not have the freedom to choose a central bank, and therefore the overall welfare falls. The system is built around a narrow circle of those in power who risk nothing.
Decentralized currencies like bitcoin are built on a system where power and risk are shared. Trusting no one institution, users are confident that a pre-approved list of rules is respected by all. The source code of bitcoin is open, which means that thousands of experts can analyze and improve it. If users become disillusioned with the rules or implementation of bitcoin, they will be able to choose from a variety of competing cryptocurrencies. The monetary revolution is happening before our eyes: anyone can create their own currency. As these currencies gain popularity, they provide an increasingly viable alternative to central banks, whose very design encourages corruption among those in power.
When you use a debit or credit card, your bank works with a company like Visa or Mastercard that charges outlet commission from each transaction. The usual commission is 3-4%. Each additional intermediary takes an additional share. The process includes not only the seller and the buyer, but the acquiring bank, the payment network and the bank that issued the card. Using a peer-to-peer cryptocurrency such as bitcoin, you can pay a fee to speed up processing, but in any case, the transaction is transmitted directly to other participants in the network. The fee is approximately 0.0001 bitcoin, or 2 cents per 1 kilobyte of data. The network does not ask who you are, to whom for what and how much you pay.
This wave of decentralization could even affect big merchants like eBay or Etsy, which have fees of 10% and 3.5% respectively. The services charge this fee to give sellers access to a large customer base, and maintain a scoring and rating system whose costs are included in the price of the item. How can we decentralize this system?
OpenBazaar provides a marketplace independent of an expensive centralized service to maintain. Instead of logging into the site, users install the OpenBazaar client on their computer and connect directly to other users. OpenBazaar does not take a commission and does not limit the range of products. Reputation and identification are provided by services of type OneName. Disputes are resolved not by employees, as on eBay, but by non-transactional users who gain reputation through fairly resolved conflicts.
In most developed countries, electricity generation is centralized. Companies spend billions of dollars on capital expenditures, building and maintaining infrastructure. With the development of technology, the methods of production and distribution of energy have improved. While the spread of electricity in the 20th century helped lift billions of people out of poverty, centralized energy production comes with environmental and political costs and undesirable externalities. The burning of fossil fuels contributes to climate change. 1.3 billion people still do not have access to electricity.
A possible solution to the problem is decentralization.
Private power generation can reduce our dependence on centralized power grids. Solar panels per watt have become 100 times cheaper in the last 40 years. The total number of working solar panels in the world is growing exponentially. Companies like SolarCity and SunRun are helping to ensure that households, companies and governments generate a significant portion of the energy they use. Throw in high-capacity batteries (Tesla Powerwall) and you have energy self-sufficient societies that distribute energy through microgrids. Thus, the obsolete and unsustainable old model of energy production is being changed.
From the revelations of Edward Snowden, it follows that the privacy of private data, including financial data, is violated by the NSA and other secret services. All our data - transactions, calls, emails, SMS - are recorded and stored. Facebook, Google, Twitter and other popular social media provide us with free services in exchange for data that they sell to advertisers. Authorities, such as the NSA, can obtain our data from companies without our consent. Cryptography will help fight privacy violations.
Gems and Syreno are creating a new type of decentralized social networks - with full encryption and without a centralized database. In the Gems and Syreno networks, advertisers pay for user attention with system tokens. Sharing information between friends is always free, but your attention is valuable to everyone. It is unlikely that the Internet giants will retreat in the near future, and new models need time to run in, but now users can choose a network with personal data protection.
Our financial data is also stored in large centralized databases that are vulnerable to attacks by cybercriminals. When using a credit card on the Internet, we transmit the name, address, card number. Attackers find vulnerabilities in data storage systems and steal this information. For example, at the end of 2013, the online retailer Target suffered from cyber attacks, which affected up to 110 million customers.
Financial systems without a central database are not as attractive to hackers: the risk is reduced. Decentralized systems like bitcoin do not require any upfront data. To further protect the data, you can use special wallets (Samourai wallet), mixers, VPN - this will not allow you to associate an IP address with a transaction.
Industrial production is a centralized process. Companies invest large amounts in equipment and protect investments by registering intellectual property rights for developments. Patent laws can prevent innovation that would be more active if ideas were in the public domain. In an attempt to fight intellectual stagnation, Tesla published all of its patents, allowing independent engineers to use their work.
Open CAD files and 3D printing are transforming how physical objects are made, from bridges to clothing and perhaps even organs. With a 3D printer and the right materials, anyone can download a CAD file and print anything. 3D printing decentralizes production: a private user can not only design a product, but also print it at home. If he unloads original file to a torrent network, the data can be considered securely stored.
The ability to assemble complex devices from printed parts could weaken government control over weapons. So, Defense Distributed has already released a working prototype of the 3D-printed pistol "The Liberator". The US State Department has demanded that the project files be "removed from the internet," but such demands are no more effective than the 1920s alcohol prohibition or the war on drugs. Perfection production process will spawn even more innovative enterprises that change the idea of the balance of freedom and security.
