A simple way to understand if an organization is working in a centralized or decentralized manner is by looking at two important aspects:
The place of the decision-making authority in the hierarchy of the management i.e. Centralized.
The degree of decision-making power at the lower echelons in the organization i.e. Decentralized.
An organization has a greater degree of decentralization if the number of decisions made and functions affected at the lower level are higher.
Further, while decentralization and delegation of authority might seem similar, you must not confuse one with another. A decentralized way of working is more about the philosophy of the organization.
Unlike delegation, it is not just about handing over a part of the authority to a subordinate but a way of approaching the decision-making process in the organization.
Decentralization is a choice, while delegation is a must. Let’s take a quick look at the advantages of centralization and decentralization:
Advantages of Centralization
The organization can strictly enforce uniformity of procedures and policies.
It can help in the elimination of overlapping or duplicate activities and save costs.
The organization has a better chance of utilizing the potential of its outstanding employees.
It offers a better control over the activities of the organization by ensuring consistency in operations and uniformity in decision-making.
Advantages of Decentralization
Faster decision-making and better quality of decisions
Improves the effectivity of managers.
Offers a democratic environment where employees can have a say in their governance.
Provides good exposure to mid and lower-level managers and creates a pool of promotable manpower with managerial skills.
Since managers can see the results of their own actions, they are more driven and have improved morales.