What is centralization & Decentralization. What are their advantages?

The Process of delegation of authority primarily refers to the centralization or decentralization of authority.

 Centralization is the degree to which decision making takes place at upper levels of the organization. If top managers make key decisions with little input from below, then the organization is more centralized. With a centralized structure, line and staff employees have limited authority to carry something out without prior approval. Centralized organizations are known for decreased span of control – a limited number of employees report to a manager, who then report to the next management level.

Decentralization is the degree to which decision making takes place at lower-level employees provide input or actually make decisions, the more decentralization is there. Decentralization seeks to eliminate the unnecessary levels of management and to place authority in the hands of first line managers and staff – thus increasing the span of control with more employees reporting to one manager

Centralization

 (1) Environment is stable.

(2) Lower-level managers are not as capable or experienced at making decisions as upper level managers

(3) Decisions are relatively minor.

(4) Organization is facing a crisis or the risk of company failure.

(5) Company is large.

(6) Lower-level managers do not want a say in decisions.

Decentralization

(1) Environment is complex, uncertain.

(2) Lower-level managers are capable or experienced at making decisions.

(3) Decisions are significant.

(4) Corporate culture is open to allowing managers a say in what happens.

 (5) Company is geographically dispersed.

(6) Lower-level managers want a voice in decisions.

Dictatorship is an example of centralized structure and democracy is an example of decentralization.

Advantages of Centralization :

1. Uniformity of decision can be maintained.

2. Quality of decision is better since each and every decision comes from top.

3. Duplication of resource utilization can be prevented.

4. Better integration of planning, directing and control activities.

5. Better coordination of work and efforts of different departments.

6. Flexibility will be high.

Advantages of Decentralization

1. Higher level management can concentrate on work.

2. It develops lower level managers to be promoted to higher level responsibilities.

3. It develops creativity and innovativeness in lower level managers.

4. It increases the morale of the lower level employees.

5. It enables to use the opportunities and local level advantages.

6. It facilitates quick and spot decision making.

7. It helps in locating the responsibilities for wrong decisions.

The degree of centralization and decentralization will depend upon the amount of authority delegated to the lowest level. According to Allen, “Decentralization refers to the systematic effort to delegate to the lowest level of authority except that which can be controlled and exercised at central points. Centralization” is the systematic and consistent reservation of authority at central points in the organization.”

Business owners should carefully consider which type of organizational structure to use in their company. Small organizations typically benefit from centralized organizational structures because owners often remain at the forefront of business operations. Larger organizations usually require a more decentralized structure since such companies can have several divisions or departments.