Depending on the level of the hierarchy at which the most important management decisions are made, the organizations are called centralized and decentralized. Centralization implies concentrating in the hands of decision-making, i.e., higher the level of reserves the greater part of the powers to manage the organization. Managers make decisions, middle-level managers coordinate and transfer them, and employees perform. The larger the organization, the more complex issues it solves. It is often necessary to make decisions quickly in connection with the behavior of competitors, changing customer needs etc. In this case, it is necessary to resort to decentralization. Decentralized organizations are those organizations in which the powers are distributed to the lower levels of management, which allows you to quickly solve the problem, because more people are involved in achieving the result.
Advantages of centralization in the economy of scale of activity, coordination. However, the higher the degree of centralization, the more delays in decision-making. The degree of diversification of production is the main factor determining the grouping by Department. On the other hand, the degree of interdependence of offices affects the depth of decentralization.
If the organization consists of a number of independent industries, maximum decentralization is possible. Organizations seeking to grow within a single industry tend to maintain a functional decentralized structure, while a diversified firm organizes decentralized offices by product or geographic location.