Sign up to access the complete lesson and track your progress!
Unlock This CourseEvery business needs to organise itself to work effectively. Think of it like a football team - everyone needs to know their position and who they report to. The way a business organises its people and decision-making is called its organisational structure.
There are two main types of organisational structure that businesses use: centralised and decentralised. These determine where decisions are made and how much control different levels of the business have.
Key Definitions:
In a centralised structure, the big boss (or senior management team) makes all the important decisions. It's like having one person decide what everyone in the family will have for dinner every night. All the power sits at the top and instructions flow down through the organisation.
In a decentralised structure, decision-making is shared out among different managers and departments. It's like letting each family member choose their own breakfast - everyone has some control over their area. Power is spread throughout the organisation.
Centralised structures are common in smaller businesses and organisations that need tight control. The CEO or senior management team makes the key decisions and these are passed down through the organisation like a game of telephone.
Imagine a pyramid with the CEO at the top. Below them might be a few directors, then department managers, then team leaders and finally the regular employees at the bottom. Information flows up the pyramid, but decisions flow down from the top.
Consistent decisions: Everyone follows the same rules and policies.
Quick coordination: One person can make decisions for the whole company.
Cost effective: Fewer managers needed at different levels.
Slow responses: Everything has to go through the top management.
Demotivated staff: Employees can't make their own decisions.
Overloaded leaders: Top managers become bottlenecks.
Small businesses: Where the owner can oversee everything.
Crisis situations: When quick, unified action is needed.
Regulated industries: Where consistency is legally required.
McDonald's is famous for its centralised structure. The company's headquarters in Chicago makes decisions about menus, pricing, restaurant design and operating procedures. This means a Big Mac tastes the same whether you buy it in London, Tokyo, or New York. However, they do allow some local adaptation - you can get rice burgers in Taiwan and vegetarian options in India!
Decentralised structures give more power to local managers and departments. Instead of waiting for head office to make every decision, regional managers or department heads can make choices that affect their area of the business.
Think of it like a network rather than a pyramid. While there's still a CEO at the top, they delegate lots of decision-making power to different parts of the business. A regional manager might decide on local marketing campaigns, or a department head might choose their own suppliers.
Faster decisions: Local managers can respond quickly to local needs.
Motivated staff: Employees feel trusted and empowered.
Local expertise: People on the ground know their market best.
Inconsistent approach: Different parts of the business might do things differently.
Higher costs: Need more managers at different levels.
Loss of control: Senior management might lose oversight.
Large businesses: Where one person can't oversee everything.
Diverse markets: When different regions have different needs.
Creative industries: Where innovation and flexibility matter.
Most successful businesses don't use purely centralised or decentralised structures. They often use a mix, centralising some decisions while decentralising others. This is called a hybrid approach.
Apple: Steve Jobs was famous for making all major decisions himself. Even today, Apple keeps tight control over product design and marketing from its California headquarters.
Ryanair: The budget airline centralises most decisions to keep costs low and maintain consistent service across all routes.
Johnson & Johnson: This healthcare giant lets its different divisions (baby products, pharmaceuticals, medical devices) operate almost like separate companies.
Unilever: The consumer goods company allows regional managers to adapt products and marketing to local tastes and cultures.
Tesco started as a highly centralised company, with head office making all major decisions. However, as it grew internationally, it had to decentralise. Store managers in Thailand needed different products than those in the UK. Today, Tesco uses a hybrid model - centralised for things like IT systems and brand standards, but decentralised for local product selection and store operations. This helped them compete better in different markets while maintaining their core identity.
Businesses don't just randomly choose their structure. Several factors influence whether they go centralised, decentralised, or somewhere in between.
The size of the business is probably the biggest factor. A corner shop can easily be centralised because the owner can see everything that's happening. But imagine trying to run Amazon or Google from one person's desk - impossible!
Small businesses often centralise because it's simpler. Large businesses usually need to decentralise because one person can't manage everything.
Companies operating in many countries often decentralise to adapt to local cultures, laws and customer preferences.
If quick responses to market changes are crucial, decentralisation helps. If consistency is more important, centralisation works better.
The structure a business chooses has a huge impact on how employees feel and perform. It affects everything from job satisfaction to career development opportunities.
In centralised structures, employees often have clear roles and responsibilities, but limited decision-making power. In decentralised structures, employees typically have more autonomy but also more responsibility for outcomes.
Centralised structures can lead to consistent performance across the organisation but may be slower to adapt. Decentralised structures can respond faster to opportunities but may have more variation in performance.
Google famously allowed employees to spend 20% of their work time on personal projects. This decentralised approach to innovation led to the creation of Gmail, Google News and AdSense. However, as Google grew larger, they had to balance this freedom with more centralised coordination to avoid duplication and ensure resources were used effectively. This shows how companies often need to adjust their structures as they evolve.
The business world is changing rapidly and organisational structures are evolving too. Technology, remote working and changing employee expectations are all influencing how businesses organise themselves.
Many modern businesses are moving towards flatter, more flexible structures. The traditional pyramid is being replaced by networks and teams that can form and reform as needed. This is partly due to technology making communication easier and partly because younger employees want more autonomy and purpose in their work.
Understanding centralised and decentralised structures is crucial for anyone studying business. These concepts help explain why some companies are nimble and innovative while others are consistent and reliable. The key is finding the right balance for each specific situation and being willing to adapt as circumstances change.