Who makes the decisions?

• Decision-making is about authority.

• A key question is whether authority should rest with senior management at the centre of a business (centralised)

• Or whether it should be delegated further down the hierarchy, away from the centre (decentralised)

Centralised Decision-Making:

• Businesses with a centralised structure keep decision-making firmly at the top of the hierarchy (amongst the most senior management)

Examples of centralisation:

• Fast-food businesses use a predominantly centralised structure to ensure that control is maintained over their thousands of outlets

• The need to ensure consistency of customer experience and quality at every location, together with a desire to exploit economics of scale, are the main reasons for this choice

Potential benefits of centralisation:

• Easier to implement common policies and practices for the whole business

• This prevents other parts of the business from becoming too independent

• Easier to coordinate and control from the centre- e.g. with budgets

• Economies of scale and overhead savings are easier to achieve

• Quicker decision-making (usually)- easier to show strong leadership

Possible drawbacks of centralisation:

• More bureaucratic- often extra layers in the hierarchy

• Local or junior managers are likely to be much closer to customer needs

• Lack of authority down the hierarchy may reduce manager motivation

• Customer service: lost flexibility and speed of local decision-making?

Decentralised decision-making:

• In a decentralised structure, decision-making is spread out to include more junior managers in the hierarchy, as well as individual business units or trading locations

Examples of decentralisation:

• Hotel chains are particularly keen on using decentralised structures so that local hotel managers and staff are empowered to make on-the-spot decisions to handle customer problems or complaints

Possible benefits of decentralisation:

• Decisions are made closer to the customer

• Better able to respond to local circumstances

• Improved level of customer service

• Can enable a flatter hierarchy

• Good way of training and developing junior management

• Facilities empowerment: should improve staff motivation

Possible drawbacks of decentralisation:

• Decision-making is not necessarily ‘strategic’

• Harder to ensure consistent practices and policies at each location

• Maybe some diseconomies of sale- e.g. duplication of roles

• Who provides strong leadership when needed (e.g. in a crisis)?

• Harder to achieve tight financial control- risk of cost-overruns