Centralization and decentralization

Centralization refers to the process in which activities involving planning and decision
making within an organization are concentrated a specific leader or location. In a
centralized organization, the decision-making powers are retained in the head office and
all other locations are directed from this main office resulting in communication flowing in
a top-down manner.
Advantages of Centralization
1. Clear Chain of Command

A streamlined and well-defined hierarchy ensures efficient decision-making.

Everyone in the organization knows who to report to and who to approach
whenever they have questions. This clarity ensures prompt responses to concerns
from employees. Senior executives follow a clear plan of delegating authority to
employees who excel in specific functions. The executives also gain the confidence
that when they delegate responsibilities to mid-level managers and other
employees, there will be no overlap. A clear chain of command is beneficial when
the organization needs to execute decisions quickly and in a unified manner.

2. Focused Vision

Centralized management aids in communicating and delivering the organization’s

vision, and the clear lines of authority enable consistent message delivery. There are
clear lines of communication and senior executives can communicate the
organization’s vision to employees and guide them towards achievement of that
vision.

3. Reduced Costs

A centralized organization follows standard procedures and methods that lead to

reduced office and administrative costs. The administrative costs and minimize
operational expenses. The organization does not need to incur extra costs to hire
specialists for other parts of the organization since critical decisions are made at the
head office and then communicated outwards. The clear chain of command reduces
duplication of responsibilities that may result in additional costs to the organization.

4. Quick Implementation

A centralized structure allows for faster decision making from the top since decisions
are made by a small group of people and then communicated to the lower-level
managers. The involvement of only a few people makes the decision-making process
more efficient since they can discuss the details of each decision in one meeting.
 5. Improved Quality of Work

The standardized procedures and better supervision in a centralized organization

result in improved quality of work. Supervisors in each department ensure that the
work outputs are uniform and of high quality.

Disadvantages of Centralization
1. Bureaucratic Leadership

As decision making is restricted to individuals at the headquarters level, employees

are unable to contribute to the decision-making process of the organization, and
they are merely implementers of decisions made at a higher level. This lack
involvement in shaping decisions results in a loss of creativity, reduced performance,
and motivation. Furthermore when the employees face difficulties in implementing
some of the decisions, senior executives will not understand because they are only
decision makers and not implementers of the decisions.

2. Remote Control

The organization’s executives are under significant pressure to formulate decisions

for the organization and they lack control over the implementation process leading
to inefficiencies. The failure of senior managers to decentralize the decision-making
process contributes significantly to their workload.

3. Delays in Work

Centralized communication may lead to productivity losses as employees rely on

information flowing to them from the top to guide project implementation. This
means that the employees will be less productive if they need to wait long periods to
get guidance on their next task.

4. Lack of Employee Loyalty

Employees become loyal to an organization when they are allowed initiative in the
work they do. Employee loyalty can decline in a centralized structure as their limited
autonomy stifles creativity and loyalty due to the rigidity of the work.

Decentralization

It is a rule under which the power is deputed to the lower level management. More clearly, it can be
termed as the delegation of power to all levels of management across the organization. Everything
that enhances the role of subordinates is known as decentralization. In order to take major decision
very strictly, the power is retained by the top management.

Importance or Advantages Of Decentralization:

 1. It places decision- making authority, responsibility and accountability closest to the job to
the extent possible.
2. It reduces the job burden of the top executives allowing them to concentrate more on
policy formulation, measurement of work performance and planning process.
3. It provides scope and facilities for developing the greatest number of all- round executives.
4. Decentralization by gradual expansion of autonomous and self- sufficient divisions
prevents multiplicity of layering and levels of organisation.
5. It facilitates diversification of products and marketing innovations.
6. It brings about internal and external economies by placing decision making. As low in the
organisation as competence and presence of facts permits.
Defects/Dis-advantages Of Decentralization:

1. It is not suitable for small firms as it increases the cost of running the business.
2. Decentralisation is of less importance for units with one product line.
3. Decentralisation provides autonomy and self- sufficiency in the Absence of co- ordination
between different autonomous units, decentralization may do more harm than good.
4. Decentralisation creates obstacles when uniformity of all decisions, policies and
procedures is required.
• Differences between centralization and
decentralization
 • Organising function
Organizing is the function of management which follows planning. It is a function in which
the synchronization and combination of human, physical and financial resources takes
place. All the three resources are important to get results. Therefore, organizational
function helps in achievement of results which in fact is important for the functioning of a
concern. According to Chester Barnard, “Organizing is a function by which the concern is able
to define the role positions, the jobs related and the co-ordination between authority and
responsibility. Hence, a manager always has to organize in order to get results.

A manager performs organizing function with the help of following steps:-

1. Identification of activities - All the activities which have to be performed in a
concern have to be identified first. For example, preparation of accounts, making
sales, record keeping, quality control, inventory control, etc. All these activities have
to be grouped and classified into units.
2. Departmentally organizing the activities - In this step, the manager tries to
combine and group similar and related activities into units or departments. This
organization of dividing the whole concern into independent units and departments
is called departmentalization .
3. Classifying the authority - Once the departments are made, the manager likes to
classify the powers and its extent to the managers. This activity of giving a rank in
order to the managerial positions is called hierarchy. The top management is into
formulation of policies, the middle level management into departmental supervision
and lower level management into supervision of foremen. The clarification of
authority help in bringing efficiency in the running of a concern. This helps in
achieving efficiency in the running of a concern. This helps in avoiding wastage of
time, money, effort, in avoidance of duplication or overlapping of efforts and this
helps in bringing smoothness in a concern’s working.
4. Co-ordination between authority and responsibility - Relationships are
established among various groups to enable smooth interaction toward the
achievement of the organizational goal. Each individual is made aware of his
authority and he/she knows whom they have to take orders from and to whom they
are accountable and to whom they have to report. A clear organizational structure is
drawn and all the employees are made aware of it.