Managerial Economics

Posted: August 6th, 2013

Managerial Economics

Making decisions within the organization involves many people. The way that the management makes decisions can determine the success or failure of the organization. In the past, many organizations tended to favor a centralized organizational structure. A centralized system is more streamlined, and it enables everyone in the organization to utilize the organization’s resources fully. This system enables the management to manage the organizations resources in an effective way. This form of structure is highly bureaucratic, meaning that one has to go through many layers in the organization’s hierarchy, before getting what he wants. The top management has the sole responsibility of making decisions, and he passes these decisions to the lower managers. He or she has to ensure that the organization performs and remain profitable. a centralized system discourages creative abilities among employees. Employees feel that they cannot contribute to the organization beyond their area of employment.

Decentralization enables the employees to share this information, and this means better performance of the organization. The danger with decentralization is that the employees might abandon the organization’s main values. Moreover, the employees might not always be the best people to make decisions concerning the organizations operations. They might not have the required skills necessary to make decisions, and this can result to chaos in the organization. Despite these challenges, the benefits of having a decentralized system in the organization outweigh the risks. The organization seeks to benefit more from having a decentralized system, rather than a centralized system, which makes it hard for the Organisation to implement any changes.