Decentralised organisational structure

Business structures can be centralised or decentralised. In a centralised structure, one person makes the main decisions and sets the direction for the business. Decisions flow from the top down through a clear chain of command in a hierarchical structure.

In a decentralised structure, the hierarchy remains, but decision-making is shared across different levels of the organisation.

How does decentralisation work?

In a decentralised organisation, lower-level managers and teams are given the authority to make decisions and take action. Senior leaders still make the biggest decisions for the whole organisation, such as setting the mission, vision and strategy. Other decisions, along with responsibility for day-to-day work, are passed down as far as possible to lower-level managers and sometimes to employees.

Examples of a decentralised organisation

Most businesses use a mix of centralised and decentralised decision-making. For example, in a franchise, individual outlets may decide who to hire, while the head office controls branding and marketing.

Decentralisation can work well for businesses that:

• need to offer personalised customer service
• operate in different locations, such as shops or branches
• need to respond quickly to market changes or competitors
• change their business model often, making central control less practical

Many small businesses start with a centralised structure and become more decentralised as they grow. As workloads and staff numbers increase, it can become too much for one person to manage everything. Decentralisation can bring benefits to a growing business, although some owners may find it hard to give up control.

What are the advantages of a decentralised organisation structure?

Giving decision-making power to lower levels of the organisation can help:

• senior leaders focus on long-term goals instead of day-to-day issues
• encourage accountability and ownership 
• develop skills and future leaders
• improve the quality and speed of decisions 
• support innovation and the sharing of ideas
• reduce staff turnover and improve job satisfaction

What are the disadvantages of a decentralised organisation structure?

Decentralisation can make processes and communication harder to manage. It can also cause problems if:

• there is no strong leadership to guide the organisation
• support or admin work is duplicated across different units
• 'silos' and unhealthy rivalry develop between units
• teams focus too much on their own needs instead of the wider business
• uniform and consistent policies are required across the various units

Most organisations work best with a balance of centralised and decentralised decision-making.

Find out about other common ways to structure a business, including a matrix structure, a project-based structure or a product-based structure.