Centralization and Decentralization

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Changing the decision-making authority and the corresponding organizational structure. Explanation of Centralization and Decentralization.

Centralization and Decentralization? Description

An organization has to make strategic and operational decisions. Where and by whom should these decisions be made? And: how should the organization structure be adapted? Centralization and Decentralization are two opposite ways to transfer decision-making power and to change the organizational structure of organizations accordingly.

Centralization:

Definition: The process of transferring and assigning decision-making authority to higher levels of an organizational hierarchy.
In a centralized organization, the decision-making has been moved to higher levels or tiers of the organization, such as a head office, or a corporate center.
Knowledge, information and ideas are concentrated at the top, and decisions are cascaded down the organization.
The span of control of top managers is relatively broad, and there are relatively many tiers in the organization. Compare: Fayol.

Decentralization:

Definition: The process of transferring and assigning decision-making authority to lower levels of an organizational hierarchy.
In a decentralized organization, the decision-making has been moved to lower levels or tiers of the organization, such as divisions, branches, departments or subsidiaries.
Knowledge, information and ideas are flowing from the bottom to the top of the organization.
The span of control of top managers is relatively small, and there are relatively few tiers in the organization, because there is more autonomy in the lower ranks.

Three Forms of decentralization

Deconcentration. The weakest form of decentralization. Decision making authority is redistributed to lower or regional levels of the same central organization.
Delegation. A more extensive form of decentralization. Through delegation the responsibility for decision-making is transferred to semi-autonomous organizations not wholly controlled by the central organization, but ultimately accountable to it.
Devolution. A third type of decentralization is devolution. The authority for decision-making is transferred completely to autonomous organizational units.

Strengths of Centralization. Characteristics

Philosophy / emphasis on: top-down control, leadership, vision, strategy.
Decision-making: strong, authoritarian, visionary, charismatic.
Organizational change: shaped by top, vision of leader.
Execution: decisive, fast, coordinated. Able to respond quickly to major issues and changes.
Uniformity. Low risk of dissent or conflicts between parts of the organization.

Strengths of Decentralization. Characteristics

Philosophy / emphasis on: bottom-up, political, cultural and learning dynamics.
Decision-making: democratic, participative, detailed.
Organizational change: emerging from interactions, organizational dynamics.
Execution: evolutionary, emergent. Flexible to adapt to minor issues and changes.
Participation, accountability. Low risk of not-invented-here behavior.

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Recent User Comments

    			 
             Naeem - UK
  	       
  		     Types of Decentralization. Categories
  	  		 "I am looking for a further classification of decentralization types? Do you have a list of forms of decentralization? Please share them and give an example. Thank you.."
  			   
    	  		 0

    			 
             Navdeep Diwan - India
  	       
  		     When is Centralization Better?
  	  		 "Please tell me the circumstances under which centralization is better than decentralization? Thanks"
  			   
    	  		 0

    			 
             Ernest Agbenohevi - Ghana
  	       
  		     Decentralization Requires Involvement and Empowerment
  	  		 "Decentralization is preferred to centralization in many cases, but decentralized systems need to look at involving each individual at the decentralized unit. To involve each individual means empowering the marginalized members of the community so that decisions agreed upon would actually reflect the the collective decision of the members of the community. Making provision for each of the representations at the local level makes decentralization somewhat costly but there is the greater advantage of every individual involved."
  			   
    	  		 1

    			 
  			   Ntoso B.B McCarthy - Ghana
  	       
  		     The link between Centralization and Decentralization to Public Administration
  	  		 "What is the link between Centralization and Decentralization to Public Administration"
  			   
    	  		 1

    			 
             Keith Bird - Australia
  	       
  		     Centralized & Decentralized Organisation
  	  		 "An idea would be to include comments and examples on the effects of managing shareholder wealth, stakeholders and the ability to add bottom line efficiency to an organization."
  			   
    	  		 1

Best User Comments

    			   
    			     wayne wasilwa - Kenya
  	         
  				   Disadvantages of Centralization and Decentralization
  				   "What are the disadvantages of centralization and of decentralization?"
    			   
        	  		 16

    			   
    			     Shivani Ghisayawan - Trinidad
  	         
  				   Decentralization Better for Small Businesses?
  				   "Decentralization argument works for large businesses. For a small business, it is better to have centralization. Do you agree? Explain."
    			   
        	  		 4

    			   
                 ribelfinza - Indonesia
  	         
  				   Crisis: Centralization or Decentralization?
  				   "In a crisis situation, which one is better: centralized or decentralized? On one hand in a crisis condition urgent decisions regarding actions have to be made. On the other hand, the need of a democratic decision is also bigger. How can we manage this situation?"
    			   
        	  		 3

    			   
    			     fahim - Pakistan
  	         
  				   Direct Communication in Decentralization
  				   "Is it possible that in decentralization the first line manager communicates directly with top management?"
    			   
        	  		 1

    			   
    			     tinuola olowojeunjeje - Nigeria
  	         
  				   Decentralization to Local Government
  				   "What is the importance of decentralization to local government?"
    			   
        	  		 1

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12manage for:

                     
                      └► V E Ravichandran (India)
                      
                    Decentralization is Good
                    "I strongly advocate devolution of decision making (decentralization). This is advantage to the organization. This will involve individuals; be accountable; work will be faster. The decision reflects on the capacity of the individual."

	└► Rameshwer Rao (India)	Disadvantages of Centralisation and Decentralisation	"Centralisation - Underutilisation of talented people, nil exposure to knowledge sharing, low morale and motivation amongst employees as power is vested with single authority. Decentralisation - Need for greater control & communication system to avoid major errors in decision making, demands for greater coordination by senior management, requires support of capable and well motivated managers."
	└► Roxanne James (Jamaica)	Disadvantage of Centralization	"The work tends to become repetitive and monotonous to the highly trained operative, who is doing the same thing every day."

└► Afure Edijala (Nigeria)	Centralization in Small Companies	"Yes, it is better to have centralization in a smaller company, since there is a low number of divisions and staffs to handle. This also aids to quick decision making and low bureaucratic cost."
└► Shweta S Awasthi (India)	Don't Agree	"A visionary and a leader is more important to a large organization compared to a smaller one. This is because in smaller organisations, people are generally more self-motivated. This makes me believe that decentralisation should prevail more in larger ones; however, that's an ideal set-up anywhere!"
└► Lee (China)	Disagree	"In some small company the cohesion depends on the personal charm of the boss, while there is enough icentive."

	└► Siyat Gaye (The Gambia)	Centralization or Decentralization in Crisis?	"Decentralization is more democratic in terms of decision making as it allows for initiatives and the use of talents.However, decentralization is not suitable in times of crisis.This is because a crisis is fluid and delicate situation which requires urgent, decisive and firm action. In times of crisis unity of command and direction is central."
	└► Shweta S Awasthi (India)	Don't Agree	"A visionary and a leader is much more important to a large org as compared to a smaller one. This is because in smaller organisations, people are generally much more self-motivated. This makes me believe that decentralisation should be prevail more in larger ones; however, that's an ideal set-up anywhere!"

                       
                        └► JC Perez (Philippines)
                        
                      Direct Communication in Decentralization
                      "No, it's not. Because, there are some levels of management that are in-charge to inform the top-level management of what they want to say."