Page 97 - Cambridge IGCSE Business Studies

7: Organisation and management

Advantages of delayering Disadvantages of delayering
Reduces costs. Increased workload for managers who remain could mean
that tasks are not completed on time or the quality of
decision-making is not as good.
Reduces the chain of command so communication and Business may have to make redundancy payments to
decision-making should be quicker and more eff ective. managers who lose their jobs. This is a one-off increase
in costs.
Wider span of control increases the opportunity for delegation. Workers who remain might fear redundancy and this reduces
This helps develop workers’ skills and could motivate workers their job security.
who are given more trust by managers.

Senior managers are in closer touch with what is happening in Wider span of control after delayering might reduce the
the business. effective management of subordinates.

Table 7.2 Advantages and disadvantages of delayering

Centralised or decentralised?
One of the most important issues a business needs to deal with is who makes
the decisions. Do senior managers at the centre of the organisation make all the
decisions? Or is some of this authority for decision-making delegated to lower level
managers? This decision involves making a choice between being a centralised

organisation or a decentralised organisation.
KEY TERMS A centralised organisation is one where decision-making power is held at the
top, by senior managers, and then passed down to lower levels in the hierarchy
Centralised organisation: one 95
through the chain of command. Many international franchise companies, such
where all the important decision- as Pizza Hut, operate a mainly centralised organisation structure. They do this to

making power is held at Head

make sure that they control what each franchised outlet offers to customers. Pizza

Office, or the centre.
Hut needs to make sure that customers receive the same level of service and quality
Decentralised organisation:
one where the decision-making products in every one of their outlets.
powers are passed down the In a decentralised organisation the authority to make some decisions is
organisation to lower levels. delegated to lower levels in the hierarchy or, in the case of a business with several
production facilities or operating in different locations, to the managers within

those areas. An example of a business that may have a decentralised structure is a
national hotel chain such as Avari Hotels Ltd., Pakistan. Although the company

directors are based in the Head Office in Karachi, each of their hotels in Pakistan
and Dubai have managers who make decisions about how best to run their hotels.
Centralised and decentralised organisations have a number of advantages and
disadvantages. Some of the most important of these are shown in Table 7.3.

Centralised organisation Decentralised organisation
Advantages Disadvantages Advantages Disadvantages

■ Decision-making is oft en ■ Slower communication. ■ Decisions are made ■ Decisions taken might
quicker. ■ Unable to respond quickly based on local needs. not be in the interests of
■ Decision are taken for to changes in local markets. ■ Can be used to train the whole business.
the benefit of the whole ■ May reduce worker junior managers. ■ Poor decisions might
business. motivation. ■ Delegation helps be made because
■ Greater use of specialist to improve worker managers lack skills and
staff improves decision- motivation. experience.

making.
Table 7.3 The advantages and disadvantages of centralised and decentralised organisations