What does vertical differentiation in an organization focus on?

Vertical differentiation in an organization primarily concerns the structure of authority and decision-making within that organization. This concept revolves around how decision-making responsibilities are distributed, whether power is concentrated at the top with a few individuals (centralization) or spread out among various levels of management and employees (decentralization).

In a vertically differentiated organization, managers at higher levels of the hierarchy tend to have a greater degree of control over decisions, while lower levels have less authority. This affects not only the operational efficacy of the organization but also influences its overall flexibility and responsiveness to market changes.

The other options relate to different aspects of organizational structure or function but do not directly pertain to the hierarchical arrangement and decision-making processes that define vertical differentiation. The size of the organization, customer service processes, and the physical location of employees do not inherently address how decision-making is organized or distributed within the company, thereby clarifying why centralization and decentralization of decision-making is the correct focus for vertical differentiation.