Centralization & Decentralization
Meaning, Definitions, Merits and Demerits
Centralization & Decentralization
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 by devising common policies and programmes.
iii. Quick decisions are possible; hence emergencies can be handled very easily.
iv. It makes communication and control easier in the organization. A centralized organization benefits from a clear chain of command because every person within the organization knows who to report to. Junior employees know who to approach whenever they have concerns about the organization.
v. It helps in reducing wastage of efforts by avoiding duplication. Thus extra labor and extra cost involved in duplication is avoided and economy is ensured.
vi. There is uniformity in actions throughout the organization .When centralized, the activities will be either in the hand of one individual or a small group of people. This will result into uniformity of activities and coordination can be achieved easily.
i. Centralized management resembles a dictatorial form of leadership where employees are only expected to deliver results according to what the top executives assign them.
ii. This system gives all responsibilities to few persons in the organization. They remain over-burdened with routine work while sub-ordinates do not have sufficient work.
iii. Centralization results in delays in work as records are sent to and from the head office. Employees rely on the information communicated to them from the top, and there will be a loss in man-hours if there are delays in relaying the records. This means that the employees will be less productive if they need to wait long periods to get guidance on their next projects.
iv. Employees become loyal to an organization when they are allowed personal initiatives in the work they do. They can introduce their creativity and suggest ways of performing certain tasks. However, in centralization, there is no initiative in work because employees perform tasks conceptualized by top executives. This limits their creativity and loyalty to the organization due to the rigidity of the work.
Centralization is quite suitable for smaller organizations, 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 organizations. In such organizations, 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.