Centralization and Decentralization - Organizing, Contemporary Management B Com Notes | EduRev

Contemporary Management

B Com : Centralization and Decentralization - Organizing, Contemporary Management B Com Notes | EduRev

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Definition of Centralization

A pivot location or group of managerial personnel for the planning and decision-making or taking activities of the organization is known as Centralization. In this type of organization, all the important rights and powers are in the hands of the top level management.

In earlier times, centralization policy was the most commonly practiced in every organization to retain all the powers in the central location. They have full control over the activities of the middle or low-level management. Apart from that personal leadership and coordination can also be seen as well as work can also be distributed easily among workers.

However, due to the concentration of authority and responsibility, the subordinate employee’s role in the organization is diminished because of all the right vests with the head office. Therefore, the junior staff is only to follow the commands of the top managers and function accordingly; they are not allowed to take an active part in the decision-making purposes. Sometimes hotchpotch is created due to excess workload, which results in hasty decisions. Bureaucracy and Red-tapism are also one of the disadvantages of centralization.

Definition of Decentralization

The assignment of authorities and responsibilities by the top level management to the middle or low-level management is known as Decentralization. It is the perfect opposite of centralization, in which the decision-making powers are delegated to the departmental, divisional, unit or center level managers, organization-wide. Decentralization can also be said as an addition to Delegation of authority.

At present, due to the increase in competition, managers take the decision regarding for the delegation of authority to the subordinates. Due to which the functional level managers get a chance to perform better, as well as freedom of work, is also there. Moreover, they share the responsibility of the high-level managers which results in quick decision making and saving of time. It is a very effective process for the expansion of the business organization, like for mergers and acquisitions.

Although, decentralization lacks leadership and coordination, which leads to inefficient control over the organization. For an effective decentralization process, open and free communication in the organization must be there.

Key Differences Between Centralization and Decentralization

The points given below are noteworthy, so far as the difference between centralization and decentralization is concerned:

  1. The unification of powers and authorities, in the hands of high-level management, is known as Centralization. Decentralization means dispersal of powers and authorities by the top level to the functional level management.

  2. Centralization is the systematic and consistent concentration of authority at central points. Unlike, decentralization is the systematic delegation of authority in an organization.

  3. Centralization is best for a small sized organization, but the large sized organization should practice decentralization.

  4. Formal communication exists in the centralized organization. Conversely, in decentralization, communication stretches in all directions.

  5. In centralization due to the concentration of powers in the hands of a single person, the decision takes time. On the contrary, decentralization proves better regarding decision making as the decisions are taken much closer to the actions.

  6. There are full leadership and coordination in Centralization. Decentralization shares the burden of the top level managers.

  7. When the organization has inadequate control over the management, then centralization is implemented, whereas when the organization has full control over its management, decentralization is implemented.

 Comparison Chart

BASIS FOR COMPARISON

CENTRALIZATION

DECENTRALIZATION

Meaning

The retention of powers and authority with respect to planning and decisions, with the top management, is known as Centralization.

The dissemination of authority, responsibility and accountability to the various management levels, is known as Decentralization.

Involves

Systematic and consistent reservation of authority.

Systematic dispersal of authority.

Communication Flow

Vertical

Open and Free

Decision Making

Slow

Comparatively faster

Advantage

Proper coordination and Leadership

Sharing of burden and responsibility

Power of decision making

Lies with the top management.

Multiple persons have the power of decision making.

Reasons

Inadequate control over the organization

Considerable control over the organization

Best suited for

Small sized organization

Large sized organization

 

Conclusion

The difference between centralization and decentralization is one of the hot topics these days. Some people think that centralization is better while others are in favor of decentralization. In ancient times, people used to run their organization in a centralized manner, but now the scenario has been changed completely due to rise in the competition where quick decision making is required and therefore many organizations opted for decentralization.

At present, most of the organisation are equipped wth both the features, as absolute centralization or decentralization is not possible. Complete centralization in an organisation not practicable because it represents that each and every single decision of the organisation is taken by the top echelon. On the other hand, full fledge decentralization is an indicator of no control over the activities of subordinates. So, a balance between these two should be maintained.

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