Why do firms centralise their strategic decision-making during crisis? A qualitative study

Abstract

Purpose Although decentralisation during crisis is more beneficial in the long run, still economic downturn increases the probability of centralisation. The purpose of this paper is to understand the sub-micro reasons of centralisation during recession. Design/methodology/approach To answer the research question, a qualitative methodology was applied based on interviews with senior managers of six English and seven Hungarian manufacturing companies. Findings In the time of crisis, companies centralise because they would like to gain efficiency. The short-term advantages of concentration of authority (such as whole company focus, easier communication and higher decision speed) override its longer term downsides such as less innovation and flexibility. Practical implications Cost cutting-driven centralisation can always generate faster results than a hazardous sales increase-driven decentralisation. A rapid centralisation can seem a safer and better choice than a stronger innovative capability of which results can be harvested only in the future. If companies centralise in the time of crisis and delegate during prosperity, adaptation to economic cycles can be crucial. This can gain competitive advantage if the companies can perceive economic situation and restructure their authority better than their competitors. Originality/value The paper would like to contribute to the quantitative-dominated literature with a descriptive, qualitative study analysing the root causes of change in concentration of authority.