Centralization

Centralization refers to the process in which activities involving planning and decision-
making within an organization are concentrated in a specific leader or location. In a
centralized organization, the decision-making powers are retained in the head office, and all
other offices receive commands from the main office. The executives and specialists who
make critical decisions are based in the head office. In a centralized government structure,
the decision-making authority is concentrated at the top, and all other lower levels follow
the directions coming from the top of the organization structure.
Centralization has the following advantages:
1. A clear chain of command A centralized organization has a clear chain of command as
every employee within the organization knows who to report to. Also employees know
who to approach in case of any concerns about the organization. Senior executives follow a
path of delegating authority to employees. A clear chain of command is important when
the organization needs to execute decisions quickly and in a unified manner.
2. Greater control. Top managers have the power to make decisions about also have more
control over employees.
3. Consistent decisions. Because decision-making power is concentrated among the few so
decisions are more consistent across all departments or divisions.
4. Focused vision In a centralized management structure, an organization can focus with ease
on the fulfillment of its vision. There are vertical lines of communication and the senior
executive communicates the organization’s goals to employees and guide them toward the
achievement of the goals which allows smooth implementation of its goals, visions, and
strategies. Also, the organization’s stakeholders such as customers, suppliers, and
communities receive a uniform message.
5. Reduced costs A centralized organization follows standard procedures and methods that
help achieve the organization’s objectives, which helps reduce office and administrative costs.
The main decision-makers are the founders of the organization and therefore, there is no need
for deploying more departments to other branches. Also, the organization does not need to
hire specialists for critical decisions. It helps reduce the cost of the organization.

6. Quick implementation of decisions In a centralized organization, decisions are made by the

top management and communicated to the lower-level managers which make the decision-
making process more efficient.

7. Improved quality of work In the centralized organization, standardized procedures are

followed, and better supervision results in improved quality of work. To ensure uniform and
high-quality output there are supervisors in each department. The use of advanced equipment
reduces wastage and also helps high-quality work. Standardization of work reduces the
repetition of tasks that result in reduced labor costs.
Disadvantages of Centralization
The following are the disadvantages of centralization:
1. Bureaucratic leadership Centralized management is a dictatorial form of leadership where
employees are expected to deliver results according to the top level of management.
Employees do not have any role in the decision-making process of the organization. They
are only implementers of decisions that lead to demotivation among employees and a fall
in their performance.
2. Remote control In such a process the decision-makers are under tremendous pressure to
formulate policies and decisions for the organization. They may feel overworked and lack
implementation of the decisions and sometimes be less productive. It prevents employees
from developing their competencies.
3. Lack of employee loyalty Employees become loyal to an organization when they feel
valued, are allowed initiative in their work, can implement their creativity, and suggest
ways of performing tasks. But in centralization, there is no initiative in work because
employees perform tasks instructed by top executives. Such rigidity limits the employees’
creativity and loyalty in the organization.
5. Demotivating. Because of the rigid nature of centralization, subordinates feel discouraged.

6. Low retention. Demotivation leads to high employee attrition.

 Decentralization

Decentralization is a form of organizational structure where there is the delegation of authority

by the top management to the middle and lower levels of management within an organization.
In such an organizational structure, the decision-making is transferred to the middle and lower
levels. which reduces the workload of top management and they also can concentrate on the
implementation part. Delegation is assigning a task and responsibility by the top management
to the middle and lower level of management. When delegation is enlarged on an
organizational level, it is called decentralization.
Importance of Decentralization
1. Rapid decision-making – In businesses, most of the decisions are taken on the spot, and
approval from the higher authority can delay the function. The ability to make quick
decisions allows an organization to function quickly and effectively in its operation.
2. Administrative development – When responsibility and challenges to develop solutions are
given to the managers, this helps them to be confident, encourage self-reliance in them,
and help them make a good decision-maker resulting in the overall development of the
organization.
3. Development of executive skills – It gives the employee invaluable exposure, and to
perform tasks individually. This creates an environment where an individual can enhance
their expertise, take more significant responsibilities and ownership & and develop
potential which is suitable for promotion.
4. Promotes growth – Decentralisation allows the heads of the department to work
independently. This independency leads to the development of the department and
healthy competition with other departments. Ultimately, the competition will lead to an
improvement and enhancement in productivity.
5. Higher control – Decentralization also reviews and evaluates the performances of each
department and gives them a thorough approach to their work.

Benefits of decentralization:

1. Quick decision-making: In a decentralized organization, decision-making becomes quicker

and better simultaneously, by delegating the power to decide the operational level, which
is nearest to the situation.
2. Executive development: It encourages confidence and self-sufficiency among employees,
as when the authority is delegated to lower levels, the executives are constantly
challenged, and they have to find solutions, for the problems they face in the day-to-day
operations.
3. Development of managerial skills: In a decentralization structure, employees get an
opportunity to prove their capabilities. Management also gets talented and competent
manpower, which can be placed in a challenging situation.
4. Relieves top management: It reduces the extent of direct supervision by the supervisor, as
they are given the liberty to act accordingly.

5. Facilitates growth: It gives greater independence to the medium and lower management to
perform functions most appropriately. It disseminates a sense of competition among various
departments, which results in increased productivity and generates more returns for the
enterprise.

6. Better control: In decentralized management, the performance of each level can be

measured, and the departments are also held responsible separately for their results. So, the
top management has better control over each department based on their performance.

7. Effective communication: Decentralization makes the communication system of the

organization more effective. It also builds a strong relationship between superiors and
subordinates. Decentralization lessens the burden of top-level management and gives actual
work experiences to some middle and lower-level management.
Disadvantages of Decentralization

Despite the benefits of decentralization, there are specific difficulties in applying it to all
circumstances and under all conditions. The actual hurdles to decentralization are as follows:

1. Issues with Coordination: Decentralization allows the management of highly competent

individuals to be done by highly skilled individuals, which sometimes becomes difficult for
the individuals to agree with each other and there arise issues of coordination.

2. Factors from Outside: Decentralization intensifies the problem of coordination within the
units. E.g: Market, competition, govt. Policies, globalization etc.

3. Increase the cost of administration: Decentralization is delegating the decision-making

power to middle and lower-level management. Since decision-making is much crucial for any
organization and requires a skilled and specialized person, that increases the cost of the
organization.
 Delegation of Authority

A manager alone cannot perform all the tasks assigned to him. In order to meet the targets,
the manager should delegate authority.
Delegation of Authority means division of authority and powers downwards to the
subordinate.
Delegation is about entrusting someone else to do parts of your job. Delegation of authority
can be defined as subdivision and sub-allocation of powers to the subordinates in order to
achieve effective results.

For achieving delegation, a manager has to work in a system and has to perform following
steps : -
• Assignment of tasks and duties
• Granting of authority
• Creating responsibility and accountability
Delegation of authority is the base of superior-subordinate relationship, it involves following
steps:-
Assignment of Duties - The delegator first tries to define the task and duties to the
subordinate. He also has to define the result expected from the subordinates. Clarity of duty
as well as result expected has to be the first step in delegation.
Granting of authority - Subdivision of authority takes place when a superior divides and
shares his authority with the subordinate. It is for this reason, every subordinate should be
given enough independence to carry the task given to him by his superiors.
The managers at all levels delegate authority and power which is attached to their job
positions. The subdivision of powers is very important to get effective results.
Creating Responsibility and Accountability - The delegation process does not end once
powers are granted to the subordinates. They at the same time have to be obligatory
towards the duties assigned to them.
Responsibility is said to be the factor or obligation of an individual to carry out his duties in
best of his ability as per the directions of superior.
Responsibility is very important. Therefore, it is that which gives effectiveness to authority.
At the same time, responsibility is absolute and cannot be shifted.
Accountability, on the others hand, is the obligation of the individual to carry out his duties as
per the standards of performance. Therefore, it is said that authority is delegated, responsibility
is created and accountability is imposed.
Decentralization Vs. Delegation
Centralization Vs. Decentralization
 Centralization Decentralization
Centralization of processes and powers in Power or structure is spread among the
the hands of few or with the top participants and supporters.
management.

faster and more efficient workflow, and Data and variables are more transparent.
clear and more consistent direction. Less
transparency.

Ideal for smaller companies with a smaller Ideal for large, planned, and organized
workforce. companies.
Low motivational level among the Employees are highly motivated and have
employees and they may feel burdened better morale.
with decisions.

One selected group shared all the risks, Better sharing of responsibilities.
burdens, and responsibilities.
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 Factors affecting centralization and decentralization
1. Size: Organization structure in terms of employee numbers and functions, influence of
adverse and adequacy of diverse decision-making processes.
2. Nature of functions: functions such as sales and production requires decentralization
whereas, finance and research efficiently require centralization.
3. Environmental influence: external factors affect the operationalization of authority. Eg:
market, competition, technology, govt. policies, globalization etc.
4. Management philosophy: decentralization of authority depends on the character of top
executives.
5. Competency of the managers: availability of managerial manpower and cost of human
capital on the organization limit the level of decentralization of the authority. Most firms
would be in favour of centralized authority to avoid extra labour cost of hiring a manager.
Principles of Centralization