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Three factors that affect management’s decisions on the degree of centralization

Many factors are considered when deciding to what degree authority should be centralized. The cost of a decision, uniformity of policy, competency levels, control mechanisms and environmental factors all affect the how much centralization of authority is needed for an area of decision making. The cost of a decision determines how much authority one must have to make it. Uniformity of policy comes into play for leaders who need consistency. 
 
Competency levels refers to the need of decentralized organizations to have an adequate supply of competent leaders and employees. Organizations having a high degree of competency levels may be willing to sacrifice small costs associated with employee mistakes for the valuable experience it yields. Control mechanisms are used to gauge the efficacy of individual divisions of an organization. Finally, environmental influences or external factors such as regulations will have an influence on the degree of centralization or decentralization.


Advantages of the network design include bringing together the special knowledge and skills of others to create value rather than hiring employees to perform this task; bringing together people with different insights into teams that work exclusively on a given project; working with a wide variety of different suppliers, customers, and other organization. 
 
Disadvantages include that other organizations in the network can fail to live up to the deadlines that were established; managers must constantly monitor the quality of work provided by those in other organizations; and employees in the outsourced organization may not commit to the same values and sense of time urgency to which employees in the host organization are committed.



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