“Move a little more to the right. Now you’re centered”

Organizational structure is important to understand because the structure helps the company identify who the major decision makers are and how tasks are organized and distributed among different departments. This is important to ensure unity, productivity and effectiveness throughout the organization and helps each individual take responsibility and stay accountable for their respective roles in the company. The organizational structure also outlines how to effectively communicate with different management levels.

There are many elements to consider and to look at when we think of the structure of the organization. One of the main elements that I enjoyed researching about was the difference between centralization and decentralization. Both structures are important to consider and both have their individual advantages and disadvantages. Below is a table I created for my fellow visual learners to illustrate the differences:

 

Centralized Structure

Decentralized Structure

Decision making
  • One individual will make decisions and provide direction
  • Small businesses usually use this structure since that one individual is typically the owner
  •  Several individuals responsible for making decisions
Advantages
  • Extremely efficient in making business decisions
    • Owners set objectives for different managers
  • Utilizes individuals with a variety of expertise and knowledge for running a variety of operations
  • Broad-based management team has knowledgeable directors or managers to handle various types of business operation
Disadvantages
  • Can suffer from negative effects of several layers of bureaucracy
  • Business owners responsible for making decisions in the company may require more time to accomplish tasks
  •  Can struggle with multiple individuals having different opinions on a particular business decision
  • Can face difficulties trying to get everyone on the same page when making decions

and here is the link to full details of where I got the information from to create this table.

In order to maintain sustainability, companies must choose to have either a centralized or decentralized structure; This however is not set in stone. A very short and brief article from the Harvard Business Review talks about CISCO, a company moving from  a centralized structure to decentralized in order to adapt to changes and cater to the company’s customers and culture. Companies need to strategically find ways to continue to participate in competition and adapt to changing trends and technologies.

In this economy, companies are definitely trying to keep up to growing trends while maintaining efficiency and attempting to cut costs. It is interesting to know that companies are really evaluating their structures in specific areas, not just in general. Along with advertising, employee wages are also one of the company’s biggest expense. An awesome article from the Financial Post talks about “the best ways to cut labor costs.” In the article, the author mentions many things to consider and strategies to help companies out with such a big expense. This came to my attention because it considered centralized and decentralized structures to assist in dealing with labor costs. It talks about considering moving from a “large, decentralized and complex organization” (Osak, 2011) to a “centralized set of policies and procedures to guide hiring practices and wage levels” (Osak, 2011).

It is really important that companies do find a structure that aligns with their mission, vision and goal as a foundation and something that they can stand one. Let’s think about buildings for a a moment…what if they didn’t have a proper structure that was strategically planned out to meet their needs? Would that building still look the same, or worse? Or would it even stand in the futre? What do you think about organizational structure? If you can build a company, what would your structure be like? Let me know in the comments below and I would love to hear about your creativity!

References:

Gulati, Ranjay. (2009). Cisco Systems (2001): Building and sustaining a customer-centric culture. Retrieved July 9, 2012 from http://hbr.org/product/cisco-systems-2001-building-and-sustaining-a-custo/an/409061-PDF-ENG?Ntt=decentralized%2520structure

Osak, Mitchell. (2011). The best way to cut labor costs. Retrieved July 9, 2012 from http://business.financialpost.com/2011/11/21/the-best-way-to-reduce-labour-costs/

Vitez, Osmond. (n.d.). Centralized vs. Decentralized Organizational Structure. Retrieved July 9, 2012 from http://smallbusiness.chron.com/centralized-vs-decentralized-organizational-structure-2785.html

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