As we can see in Kooistra’s example, there are some prerequisites to decentralising an organisation, such as a performance reporting system, bottom-up budgeting leading to accountability, and an incentive system. Many organisations nowadays are run by such methods However, the optimum structure may vary according to company, for which there might be several reasons. In this essay, I try to analyse which aspects of centralisation and decentralisation can enhance the function of a particular organisation. I set out various organisational circumstances, and then assess which types of companies are appropriate to be centralised.
It has been argued that centralisation has to do with the locus of authority to make decisions affecting the organisation. It can also refer to the tools to measure the degree of centralisation ‒ how many decisions have to be referred to headquarters or to a parent organisation (Pugh et al,, 1968, p. 76)? From this point of view, centralisation can be regarded as the degree to which decision making is confined to the upper levels of the organisation. In a small organisation, decision-makers can make decisions well and efficiently; they can set goals by themselves, communicate them to the employees and properly evaluate performance, because they are able to acquire information and communicate with employees directly. In other words, centralisation can operate well in a small company, as the upper levels of the organisation are able to be aware of issues throughout the departments and can make useful decisions. On the other hand, in a large company it may be impractical for a small number of executives to be responsible for most of the decision making. Thus, in terms of size of organisation, centralisation can be more suitable for a small business than for a large one. Returning to Kooistra’s example in the course book, Tom’s father, as a founder