A centralized organizational structure is an approach to handling decisions that concentrates the power at the top of a hierarchy. A limited number of people have the ability to make decisions and they are senior members of the company or organization. This contrasts with a decentralized organizational structure, where higher-ups delegate authority down a chain of command to allow employees at many levels to make decisions. There are advantages and disadvantages to both structures that may be considered in the course of developing or modifying an organizational structure.
This approach can be seen everywhere from small businesses to large companies. A business owner with only a few employees may prefer to make all the decisions for the business in a centralized organizational structure. Employees must discuss any planned activities or concerns with the owner, and cannot independently make decisions, except in very controlled circumstances. This allows for greater control over business operations.
At large companies, the centralized organizational structure is typically paired with a very large and heavily tiered hierarchy. As people work their way up the hierarchy, they have more authority and more connections to people who can make decisions. At the very top lie the handful of people with the ultimate power over activities at the company. These can be members of a board, or chief officers, depending on how the business is organized.
One advantage of centralized organizational structure is efficiency. When decisions need to be made, they are made quickly, because no consultation is necessary. However, the disadvantage to central control is that it may take a long time for issues to reach the people who can make decisions. They are often overloaded with work and it may take some time for an issue to come to their attention. In a decentralized structure, autonomy at lower levels can allow for faster resolution of minor problems because they do not need to be escalated through a series of tiers.
Another potential flaw of centralized organizational structure is stagnation. Upper officials of a company may not be in touch with workers, or could lag behind on industry developments. When they are the only people making decisions, it may be hard for a company to move forward and promote progress. This structure can also contribute to a more hidebound culture where employees feel less valued. People trusted with decisions tend to feel more connected to their employers, and may be more prone to stay in the long term.