Centralization and Decentralization - Organizing | Principle of Management

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Centralization and Decentralization - Organizing | Principle of Management

Centralization and Decentralization

Centralization:

When top-management retains power and authority without delegating to the subordinates in planning  and decision making matters, it is called centralization. According to Griffen:“centralization is the process of systematically retaining power in the hands of higher level managers.”

Advantages of Centralization: Terry and Franklin (2005) mention the following advantages of centralized structure:

  1. Chief executives enjoy power and prestige.
  2. Uniformity of policies, practices and decisions are fostered.
  3. Duplication of functions is minimized.
  4. A strong coordinated team of top management is developed.
  5. Full utilization of the main office facilities is realized.

Disadvantages of Centralization:

  1. Work load to the top management.
  2. Rising inequality in the distribution of authority.
  3. Less opportunity for development for middle and lower level managers.
  4. Close supervision de-motivate educated and trained managers.

Decentralization:

It means the decentralization of power of decision making to the level where the work is to be performed. In other words, It is the systematic distribution of authority to the lowest levels of the organization. According to Koontz and Weihrich,: “ Decentralization a the tendency to disperse decision- making authority in an organized structure”

Advantages of Decentralization:

  1. Encourage other managers to make decision and take authority and responsibility.
  2. Motivates employees at work.
  3. Develops skills of managers and ensures their growth.
  4. Coordination of activities can be increased.
  5. Facilitates product diversification.

Disadvantages of decentralization:

  1. Difficult to have uniform policy and procedures.
  2. Loss of power in certain cases by the top management
  3. Chances of misuse when managers are not skilled and qualified.
  4. Increase cost in training and development of new managers.
  5. Not Practical without proper mechanisms of planning and controlling.

Reasons for decentralization:

  1. 1. To delegate power and authority.
  2. 2. To deal with environmental complexity and uncertainty.
  3. 3. To encourages participation.
  4. 4. To attract qualified people in organization.

Difference between Delegation and Decentralization.

Basis
Delegation
Decentralization
 
Meaning
Managers delegate some of their function and authority to their subordinates.
 Right to take decisions is shared by top management and other level of management.
 
 Scope
Scope of delegation is limited as superior delegates the powers to the subordinates on individual bases.
 Scope is wide as the decision making is shared by the subordinates also.
 Responsibility
Responsibility remains of the managers and cannot be delegated
Responsibility is also delegated to subordinates.
 Freedom of Work
Freedom is not given to the subordinates as they have to work as per the instructions of their superiors.
 Freedom to work can be maintained by subordinates as they are free to take decision and to implement it.
Nature
It is a routine function
It is an important decision of an enterprise.
Need on purpose
 Delegation is important in all concerns whether big or small. No enterprises can work without delegation.
 Decentralization becomes more important in large concerns and it depends upon the decision made by the enterprise, it is not compulsory.
Grant of Authority
The authority is granted by one individual to another.
It is a systematic act which takes place at all levels and at all functions in a concern.
Grant of Responsibility
 Responsibility cannot be delegated
Authority with responsibility is delegated to subordinates.
 Degree
Degree of delegation varies from concern to concern and department to department.
Decentralization is total by nature. It spreads throughout the organization i.e. at all levels and all functions
 
Process
Delegation is a process which explains superior subordinates relationship
It is an outcome which explains relationship between top management and all other departments.
 
Essentiality
Delegation is essential of all kinds of concerns
Decentralization is a decisions function by nature.
 Significance
Delegation is essential for creating the organization
Decentralization is an optional policy at the discretion of top management.
 Withdrawal
 Delegated authority can be taken back.
It is considered as a general policy of top management and is applicable to all departments.
Freedom of Action
Very little freedom to the subordinates
 Considerable freedom

Decentralization can be called as extension of delegation. When delegation of authority is done to the fullest possible extent, it gives use to decentralization.

Coordination of activities:

Coordination is the process of integration of work of different departments of the organization to accomplish goals. According to Griffin:” coordination is the process of linking activities of the various departments of the organizations”

Purpose of coordination: Coordination is very important for effective management in an organization. The main reasons for coordination are:

  1. 1. To increase efficiency and effectiveness.
  2. 2. To improve human relation.
  3. 3. To implement organizational planning.
  4. To facilitate and enhance team building.

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