centralization/Decentralization

The general pattern of authority throughout an organization determines the extent to which that organization is centralized or decentralized.
A centralized organization systematically works to concentrate authority at the upper levels. In a decentralized organization, management consciously attempts to spread authority to the lower organization levels.
A variety of factors can influence the extent to which a firm is centralized or decentralized. The following is a list of possible determinants:
• The external environment in which the firm operates. The more complex and unpredictable this environment, the more likely it is that top management will let low-level managers make important decisions. After all, low-level managers are closer to the problems because they are more likely to have direct contact with customers and workers. Therefore, they are in a better position to determine problems and concerns.
• The nature of the decision itself. The riskier or the more important the decision, the greater the tendency to centralize decision making.
• The abilities of low-level managers. If these managers do not have strong decision-making skills, top managers will be reluctant to decentralize. Strong low-level decision-making skills encourage decentralization.
• The organization's tradition of management. An organization that has traditionally practiced centralization or decentralization is likely to maintain that posture in the future.
In principle, neither philosophy is right or wrong. What works for one organization may or may not work for another. Kmart Corporation and McDonald's have both been very successful — both practice centralization. By the same token, decentralization has worked very well for General Electric and Sears. Every organization must assess its own situation and then choose the level of centralization or decentralization that works best.

The Informal Organization
In addition to formal organizational structures, an organization may also have a hidden side that doesn't show up on its organizational chart. This hidden informal organization is defined by the patterns, behaviors, and interactions that stem from personal rather than official relationships

In the informal organization, the emphasis is on people and their relationships; in the formal organization, the emphasis is on official organizational positions. The leverage, or clout, in the informal organization is informal power that's attached to a specific individual. On the other hand, in the formal organization, formal authority comes directly from the position. An individual retains formal authority only so long as he or she occupies the position. Informal power is personal; authority is organizational.
Firmly embedded within every informal organization are informal groups and the notorious grapevine; the following list offers descriptions of each:
• Informal groups. Workers may create an informal group to go bowling, form a union, discuss work challenges, or have lunch together every day. The group may last for several years or only a few hours.
Sometimes employees join these informal groups simply because of its goals. Other times, they simply want to be with others who are similar to them. Still others may join informal groups simply because they want to be accepted by their coworkers.
• The grapevine. The grapevine is the informal communications network within an organization. It is completely separate from — and sometimes much faster than — the organization's formal channels of communication.
Formal communication usually follows a path that parallels the organizational chain of command. By contrast, information can be transmitted through the grapevine in any direction — up, down, diagonally, or horizontally across the organizational structure. Subordinates may pass information to their bosses, an executive may relay something to a maintenance worker, or employees in different departments may share tidbits.
Grapevine information may be concerned with topics ranging from the latest management decisions to the results of today's World Series game to pure gossip. The information may be important or of little interest. By the same token, the information on the grapevine may be highly accurate or totally distorted.
The informal organization of a firm may be more important than a manager realizes. Although managers may think that the informal organization is nothing more than rumors that are spread among the employees, it is actually a very important tool in maintaining company-wide information flow. Results of studies show that the office grapevine is 75 percent to 90 percent accurate and provides managers and staff with better information than formal communications.
Rather than ignore or try to suppress the grapevine, managers should make an attempt to tune in to it. In fact, they should identify the people in the organization who are key to the information flow and feed them information that they can spread to others. Managers should make as big an effort to know who their internal disseminators of information are as they do to find the proper person to send a press release. Managers can make good use of the power of the informal organization and the grapevine