Centralized VS decentralized management

The management of a company is presented in different ways, but in general, we categorize it as centralized and decentralized. The best option will vary according to each case of each company, with no right or wrong.

In this article, we are going to address the differences and main points of each form of management, so that you can choose the best one for your organization!

What is centralized management?

Centralized management is the business management model in which all decisions are taken by the CEO or board of directors.
In this model, decision-making is concentrated in a few people, who are usually at the top of the organization’s hierarchy.

This type of management is more common in small and medium-sized companies , where the organizational structure is less complex, that is, with few employees.

What is the difference between centralized and centralized management?

Centralized management is characterized by the fact that there is greater participation of other areas of the organization in decision-making.

Centralized management follows a similar logic, however, decisions have a tone of total authority.

In general, centralized management is more rigid and hierarchical, while centralized management is more flexible and participative, taking into account the voice of each employee.

What is the impact of centralized management?

Decisions being in the hands of a few people directly affect the way company members interact, both in decision-making and in the  role of leadership within the business

The most important responsibilities are for those with a global vision of the company , who develop strategies based on long-term objectives. As a result, the business expands and creates a positive image while reducing costs without losing quality.

Advantages of centralized management

– More efficient control over the organization’s activities: in this way, it is possible to ensure that all areas are aligned with the company’s strategic objectives;

– Facilitates decision-making: this model facilitates decision-making, since all relevant information is concentrated in the hands of the organization’s leaders;

– Efficiency in the implementation of strategies: centralized management tends to be more efficient in the implementation of the strategies defined by the directors, as there are less chances of having problems or delays in the execution of these initiatives.

Disadvantages of centralized management

– Risk of authoritarian culture: the main disadvantage of centralized management is the risk of creating an authoritarian and inflexible corporate culture;

– Decisions taken away from the problem area: this can lead to a lack of employee motivation, as they tend to feel disconnected from the company’s strategic decisions. This lack of motivation can negatively affect productivity and harm the performance of the organization as a whole.

– Delay in decision making: Longer lines of communication result in longer decision times and higher operating costs. Due to the large number of people involved, the potential for distortions and personal errors in the process increases.

What precautions should management take when centralizing information?

When it comes to centralizing information, it is essential that management be careful not to compromise the quality of the service . In addition, it is important to ensure that the people involved are aware of the changes and the objectives of the new strategy.

It is also essential to be clear about the company’s strengths and weaknesses, as well as external opportunities and threats. Only then will it be possible to make intelligent strategic decisions aligned with the organization’s objectives.

What is decentralized management?

Decentralized management is a management model in which functions are divided among several departments or business units. Each sector is responsible for a specific area and has autonomy to make decisions about its area of ​​activity.

This management model was created to make organizations more agile and flexible , since each department or unit can quickly adapt to changes in the market or the internal environment.

In addition, decentralized management also allows organizations to delegate responsibilities to employees, which can increase employee motivation and commitment to company goals.

This type of management is more suitable for medium and large companies . Having too many employees can make the activities of some sectors get out of control, becoming disorganized and time-consuming.

Advantages of decentralized management

–  Motivation and retention of talent: increasing employee participation in decision-making can increase motivation and engagement with the company.

– Creativity in problem solving: decentralization favors the innovative and creative spirit of employees, as they have more autonomy to implement new ideas.

Risks of decentralized management

–  Difficulty in control: One of the risks of decentralized management is the loss of control over the company’s activities, which may end up not being carried out according to established standards.

–  Lack of uniformity in decisions: the difficulty of coordinating the activities of the various departments can lead to duplication of efforts and lack of synergy between them.

Given this scenario, it is important for the company to have a strong and consistent governance project, in addition to well-defined corporate guidelines to minimize the risks of this management model.

Centralized and decentralized management: is there a better one?

As seen previously, both centralized and decentralized management have advantages and disadvantages, characteristics and particularities

Therefore, the choice between centralized or decentralized management must take into account some factors, such as the size and complexity of the organization, as well as the nature of the processes and activities performed.

In general, centralized management allows greater control over processes and activities, while decentralized management favors flexibility in the execution of processes. Therefore, there is no management model that is better than the other, everything will depend on the business profile that the manager seeks to implement in the company.