Changing Organisational Design (AQA A Level Business): Revision Note

Centralisation and decentralisation

What is centralisation?

• Centralisation is where decision-making authority is concentrated at the top of the organisation

  • Senior managers make most or all significant decisions

  • Lower-level employees have limited power to act independently

Example

A national fast food chain sets menus, prices and promotional offers centrally

This ensures customers receive a consistent experience in every location regardless of regional differences in demand or taste

Advantages of centralisation

• Decisions are consistent across all parts of the business

  • This protects brand standards and reduces the risk of conflicting approaches in different locations or departments

• Senior managers retain close control over the direction of the business

  • This is particularly important during a period of change or financial difficulty

• Bulk purchasing and other economies of scale are easier to achieve when buying decisions are made centrally

• Coordination of activity across departments and locations may be easier

Disadvantages of centralisation

• Decision-making can be slow, as everything must be referred upwards through the hierarchy

• Senior managers may be too far removed from customers and frontline operations to make well-informed decisions

• Employees at lower levels may feel undervalued and lacking in autonomy

  • This can reduce motivation and engagement

• Creates a bottleneck at the top

  • Senior managers can become overloaded with decisions that could be handled effectively at a lower level

Decentralisation

• Decentralisation is where decision-making authority is delegated to managers and employees lower down the organisation

  • This gives them greater autonomy to make decisions within their areas of responsibility

Example

A hotel group allows individual hotel managers to set room rates, approve local partnerships and respond to guest complaints without seeking approval from head office

This means a faster, more personalised service than a centralised competitor could provide

Advantages of decentralisation

• Decisions can be made more quickly

  • They do not need to travel up through multiple layers of management

• Managers closer to the customer are better placed to respond to local conditions, preferences and competitive pressures

• Greater autonomy motivates employees

  • By giving them responsibility and the opportunity to develop their decision-making skills

• Senior management is freed up to focus on longer-term strategic priorities rather than day-to-day operational decisions

Disadvantages of decentralisation

• Decisions may be inconsistent across different parts of the business

  • This can harm the brand and create confusion for customers

• Lower-level managers may lack the experience or information needed to make good decisions

• Harder to coordinate activity across departments and locations when multiple people have independent decision-making authority

• May require significant investment in management training and development to ensure decisions are of a high quality

Restructuring

• Restructuring involves making significant changes to the way a business is organised – including its hierarchy, departments, workforce size or the allocation of responsibilities

  • Its aim is to improve efficiency, reduce costs or better align the organisation with its strategic goals

Common forms of restructuring

Delayering

• Involves removing one or more levels of management from the hierarchy

• Creates a flatter structure, speeds up communication and reduces management costs

  • E.g. Unilever announced plans in 2024 to cut 7,500 roles globally by removing a layer of senior management. Its aim was to create a leaner structure with faster decision-making between teams and senior leadership

Downsizing

• Reducing the overall size of the workforce through redundancies

• Typically a strategy to cut costs or improve efficiency

  • E.g. Meta laid off approximately 11,000 employees in 2022 — around 13% of its global workforce — after over-hiring during the pandemic period

Outsourcing

• Contracting out certain functions, such as IT, payroll or customer service, to specialist external providers, allowing the business to focus on its core activities

  • E.g. The NHS outsources some diagnostic services — including MRI scans and physiotherapy — to private providers to reduce waiting times

• Outsourcing is considered in more detail here

Reorganising departments

• Merging, splitting or changing teams and divisions to reflect new strategic priorities or to remove duplication

  • E.g. Google reorganised its entire business in 2015, creating a new parent company called Alphabet. Google became one of several subsidiaries and longer-term projects, such as self-driving cars and life sciences were included in the new structure

Example

In 2023, BT announced plans to cut up to 55,000 jobs by 2030, partly through replacing some roles with artificial intelligence and automation

The restructuring aimed to significantly reduce operating costs and improve efficiency, but raised concerns about the impact on affected workers and the communities in which BT operates

Advantages and disadvantages of restructuring