In considering organizational dynamics, the term centralization makes reference to the degree in which the decision making processes are concentrated at a solitary junction within the organizational structure itself. An example of a centralized decision making process within an organization can be found when key decisions are made by top management of the entity with little or no input from individuals further down the organizational chart.
On the other hand, decentralized organization is one in which the decision making processes occur on multiple levels of the organizational structure. For example, lower level managers are more involved in making decisions regarding the organization in a decentralized setting. Input from lower levels is considered by top management.
In many ways, a centralized structure can be beneficial to a small organization. Small retail stores have benefited from a centralized structure as have other smaller operations. Decentralization has proved beneficial in many instances in large organizations that has offices or outlets in different locations.
There are some disadvantages to a centralized organizational structure. One disadvantage is the fact that in some instances actions are taking more slowly when problematic situations arise below the management level. At times employees can feel alienated or even isolated from management.
Because of the disadvantages that are inherent in a centralized organizational structure, some organizations have moved towards a greater degree of decentralization. By doing this these organizations appear to becoming more flexible and responsive to the needs of their lower level managers and employees generally.