The so-called centralization is the concentration of power, and the decision-making power is largely concentrated in the hands of managers with higher positions. The benefits of centralization include the specialization/key quality of knowledge (by organizing experts from various departments to innovate), economies of scale and scope, efficiency/avoiding repeated waste of scarce resources/"career development". Generally speaking, centralization can ensure that companies "do things correctly". Of course, centralization also has certain costs: coordination costs, "distance" from customers, insufficient vision and serious bureaucracy. Carrefour in France, for example, once lost 70% of its inventory because of excessive centralization.
The so-called decentralization means the decentralization of power, and the decision-making power is dispersed in the hands of managers with lower positions. The benefits and costs of decentralization are just the opposite of centralization: close to customers, quick response to industry changes, good management effect and few cooperation problems, that is, decentralized management can ensure "doing the right thing" to a certain extent, but it will lead to repeated waste of scarce resources, potential loss of economies of scale/efficiency, and the loss of "control" of the head office caused by excessive decentralization.
Centralization and decentralization have their own advantages and disadvantages, and the choice of these two organizational structures depends on which is more important, the benefits and costs brought by the management team from a strategic or operational point of view.
If the company adopts a low-cost strategy, that is, the company adopts centralized management in bulk products or highly competitive industries, and realizes efficient operation, economies of scale and economies of scope through standardization, batch production and repeated labor.
If the company adopts the strategy of differentiation, focusing on products/regions and more decentralized management, it can focus on one product, one region and one customer.
If the company adopts globalization strategy, it needs to see the dual perspectives of products and geographical regions, emphasize the maximization of efficiency and benefit, and establish more matrix organizational structures.
If there is a high degree of correlation between strategic markets (such as customer groups, distribution channels, prices, etc. ) and technology (manufacturing technology, processing technology, development technology, etc. ), it is more likely to adopt a centralized organizational structure, on the contrary, it is more likely to choose a decentralized organizational structure.
In organizational operation, in addition to strategic promotion, managers must fully understand the restrictive factors such as decision-making, policy, scale, history, philosophy, level, means, performance, stability and environment, and flexibly coordinate the relationship between centralization and decentralization:
1, decision cost: the higher the decision cost, the higher the degree of centralization;
2. Organization scale: The larger the organization scale, the higher the degree of decentralization;
3. Number and ability of middle managers: If there are enough middle managers with rich experience and strong management ability, they can delegate more power, otherwise they should tend to be centralized;
4. Control technology and means: The more perfect the high-level control technology and means, the more suitable for decentralization;
5. Performance after decentralization: The better the performance after decentralization, the more conducive to decentralization.
At present, most groups are a mixed structure of centralization and decentralization, and the degree of centralization and decentralization is slightly different according to the market environment and actual needs. For example, Ebay is neither a purely centralized organization nor a purely decentralized organization, but has the advantages of both types. On the one hand, it has a decentralized bottom-up approach, on the other hand, it has a centralized structure, control and profitability; General electric, for example, is a part of the internal decentralization of centralized companies, with both CEO and hierarchical structure and decentralization strategy.
With the development of the Internet and the intensification of market competition in the era of VUCA, decentralized organizations are increasingly used because of their great flexibility. Xin Baoan, the human resources department of the State Grid, stressed in promoting the strategy of "simplifying administration and decentralization, strengthening supervision and improving services" that combining accurate and effective management and control, we should rationally decentralize and authorize, grasp the big and release the small, and appropriately release them. In addition, many centralized corporate headquarters are also establishing strategic management departments, manager training departments and "centers of excellence" to formulate industry standards to meet the development needs of centralized or decentralized companies.
In the practice of organization and management, the division of power should follow the principles of "moderate concentration, orderly decentralization, orderly authorization and rational use of power". Flexible use of centralization and decentralization, balancing the relationship between them and learning reasonable authorization are the lifeblood of enterprise development.