Centralization and Decentralization
Meaning, Definitions, Merits and Demerits
In some organizations, top managers make all the decisions. Lower-level managers merely carry out top management’s directives. At the other extreme, there are organizations in which decision making is pushed down to the managers who are closest to the action. The former organizations are highly centralized, the latter are decentralized. The term centralization refers to the degree to which decision making us concentrated at a single point in the organization. The concept includes only formal authority- that is, the rights inherent in one’s position. Typically, it’s said that if top management makes the organization’s key decisions with little or no input from lower-level personnel, then the organization is centralized. In contrast, the more that lower-level personnel provide input or are actually given the discretion to make decisions, the more decentralization there is.
According to Allen
Centralization is the systematic and consistent reservation of authority at central points within an organization.
i. Centralization provides opportunity for personal leadership.
ii. It facilitates integration of efforts.
iii. Quick decisions are possible; hence emergencies can be handled very easily.
iv. It makes communication and control easier in the organization.
v. It helps in reducing wastage of efforts by avoiding duplication.
vi. There is uniformity in actions throughout the organisation and, thus coordination can be achieved easily.
Centralization is quite suitable for smaller organisations, organizations producing single or homogeneous products, and operating in limited geographical areas. However, when organizations grow in size and diversity, the benefits of centralization turn into limitations which effect the operational efficiency of the organisations. In such organisations, decision making becomes quite complex but at the same time, faster decision making is required. This is not possible in centralization. Therefore, its alternative, that is decentralization, is preferable.