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Centalization and Decentralization

CENTRALIZATION is said to be a process where the concentration of decision making is in a few hands. In a centralized organization, the decision-making has been moved to higher levels or tiers of the organization. Decentralization is a systematic delegation of decision-making authority to lower levels.

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Prabha Kvel
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747 views4 pages

Centalization and Decentralization

CENTRALIZATION is said to be a process where the concentration of decision making is in a few hands. In a centralized organization, the decision-making has been moved to higher levels or tiers of the organization. Decentralization is a systematic delegation of decision-making authority to lower levels.

Uploaded by

Prabha Kvel
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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CENTALIZATION AND

DECENTRALIZATION
By

Ramprabha.K

1st year MBA

0911010249

An organization has to make strategic and operational decisions. Where and


by whom should these decisions be made? And: how should the organization
structure be adapted? Centralization and Decentralization are two opposite ways to
transfer decision-making power and to change the organizational structure of
organizations accordingly.

CENTRALIZATION
Centralization is said to be a process where the concentration of decision
making is in a few hands. All the important decision and actions at the lower level,
all subjects and actions at the lower level are subject to the approval of top
management. According to Allen, “Centralization” is the systematic and consistent
reservation of authority at central points in the organization. The implication of
centralization can be:-

1. Reservation of decision making power at top level.


2. Reservation of operating authority with the middle level managers.
3. Reservation of operation at lower level at the directions of the top level.

Centralization can also be defined as the process of transferring and


assigning decision-making authority to higher levels of an organizational hierarchy.

In a centralized organization, the decision-making has been moved to higher


levels or tiers of the organization, such as a head office, or a corporate center.
Knowledge, information and ideas are concentrated at the top, and decisions are
cascaded down the organization. For example, in a business concern, the father &
son being the owners decide about the important matters and all the rest of
functions like product, finance, marketing, personnel, are carried out by the
department heads and they have to act as per instruction and orders of the two
people. Therefore in this case, decision making power remain in the hands of father
& son.

The span of control of top managers is relatively broad, and there are
relatively many tiers in the organization. Compare: Fayol.

STRENGTHS OF CENTRALISATION

• Philosophy / emphasis on: top-down control, leadership, vision, strategy.


• Decision-making: strong, authoritarian, visionary, charismatic.
• Organizational change: shaped by top, vision of leader.
• Execution: decisive, fast, coordinated. Able to respond quickly to major
issues and changes.
• Uniformity: Low risk of dissent or conflicts between parts of the
organization.

DECENTRALIZATION
Decentralization is a systematic delegation of authority at all levels of
management and in all of the organization. In a decentralization concern, authority
in retained by the top management for taking major decisions and framing policies
concerning the whole concern. Rest of the authority may be delegated to the middle
level and lower level of management. According to Allen, “Decentralization refers to
the systematic effort to delegate to the lowest level of authority except that
which can be controlled and exercised at central points.

It can also be defined as the process of transferring and assigning decision-


making authority to lower levels of an organizational hierarchy.

In a decentralized organization, the decision-making has been moved to lower


levels or tiers of the organization, such as divisions, branches, departments or
subsidiaries. Knowledge, information and ideas are flowing from the bottom to the
top of the organization.
Decentralization pattern is wider is scope and the authorities are diffused to
the lowest most level of management. Delegation of authority is a complete process
and takes place from one person to another. While decentralization is complete only
when fullest possible delegation has taken place. For example, the general manager
of a company is responsible for receiving the leave application for the whole of the
concern. The general manager delegates this work to the personnel manager who is
now responsible for receiving the leave applicants. In this situation delegation of
authority has taken place. On the other hand, on the request of the personnel
manager, if the general manager delegates this power to all the departmental heads
at all level, in this situation decentralization has taken

place. There is a saying that “Everything that increasing the role of subordinates is
decentralization and that decreases the role is centralization”. Decentralization is
wider in scope and the subordinate’s responsibility increase in this case. On the
other hand, in delegation the managers remain answerable even for the acts of
subordinates to their superiors.

The span of control of top managers is relatively small, and there are
relatively few tiers in the organization, because there is more autonomy in the
lower ranks.

3 FORMS OF DECNTRALISATION

• Deconcentration. The weakest form of decentralization. Decision making


authority is redistributed to lower or regional levels of the same central
organization.
• Delegation. A more extensive form of decentralization. Through delegation
the responsibility for decision-making are transferred to semi-autonomous
organizations not wholly controlled by the central organization, but ultimately
accountable to it.
• Devolution. A third type of decentralization is devolution. The authority for
decision-making is transferred completely to autonomous organizational units.

STRENGTHS OF DECENTRALISATION

• Philosophy / emphasis on: bottom-up, political, cultural and learning dynamics.


• Decision-making: democratic, participative, and detailed.
• Organizational change: emerging from interactions, organizational dynamics.
• Execution: evolutionary, emergent. Flexible to adapt to minor issues and
changes.

IMPLICATIONS OF DECENTRALISATION

1. There are fewer burdens on the Chief Executive as in the case of


centralization.
2. In decentralization, the subordinates get a chance to decide and act
independently which develops skills and capabilities. This way the organization
is able to process reserve of talents in it.
3. In decentralization, diversification and horizontal can be easily implanted.
4. In decentralization, concern diversification of activities can place effectively
since there is more scope for creating new departments. Therefore,
diversification growth is of a degree.
5. In decentralization structure, operations can be coordinated at divisional
level which is not possible in the centralization set up.
6. In the case of decentralization structure, there is greater motivation and
morale of the employees since they get more independence to act and decide.
7. In a decentralization structure, co-ordination to some extent is difficult to
maintain as there are lot many department divisions and authority is
delegated to maximum possible extent, i.e., to the bottom most level
delegation reaches. Centralization and decentralization are the categories by
which the pattern of authority relationships became clear. The degree of
centralization and de-centralization can be affected by many factors like
nature of operation, volume of profits, number of departments, size of a
concern, etc. The larger the size of a concern, a decentralization set up is
suitable in it.

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