Centralization versus decentralization in multinational companies
- Presentation of the strategies of centralization & decentralization
- The coexistence of both strategies in organizations
- The new profile of multinational enterprises and consequences for the corporate world
The emerging debate over centralization vs. decentralization highlights one of the most challenging issues in management- what the most efficient corporate structure is for a company. Globalization makes multinational enterprises develop their ability to respond quickly to changes in the economically or politically fast-moving environments, and elaborate strategies to perform on both a global and a local scale. To strengthen and increase their positions on the market, these companies must optimize not only the use of their resources but also their organizational structure in order to be more efficient in their daily activities and get closer to customers' expectations. The main risk faced by multinational enterprises is the loss of efficiency or responsiveness due to their large size, their geographical dispersal or their bureaucratic organization. In fact the heart of the matter resides in adopting the most appropriate decision making process for the organization. It must be determined how to share power between headquarters and the other entities of the company.
This essay aims at clarifying the distinction between the apparently opposing strategies of centralization and decentralization, by emphasizing the importance of their coexistence within an organization. Moreover it seeks to envisage the main consequences of these strategies on multinational companies. The first part is dedicated to presenting both strategies deeply, the second one; to analyzing to what extent they can coexist in a company, and the third one to describing the new profile of multinational enterprises and the consequences of it for the corporate world.
[...] In other words firms have to find the degree to which centralization must be used in combination with decentralization in order to obtain a balance which maximizes innovation and efficiency. Currently the concept of decentralization is gaining momentum in many firms so that some managers call for decentralizing of organizations as much as possible. Despite the success of centralization at IBM, Gerstner advocates decentralization: decentralize decision making wherever possible, but [ . ] we must balance decentralized decision making with central strategy and common customer focus". [...]
[...] Though there is no infallible strategy, let us keep in mind that the idea is neither to replace all the centralized strategies by decentralized ones, nor to complete centralized strategies with decentralized ones. The main issue for companies in elaborating their strategy is to have the benefits of both centralization and decentralization without suffering from their respective costs. The debate,