Centralization and Decentralization

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.

Centralization and Decentralization Forum (14)

Democratization Instead of Decentralization
"Decentralization has been around for very long, but with protracted results due to top-down hierarchical organization structures. Decentralization is only a fad and true decentralization is hardly practiced. Final decisions are still in the hands of top leaders who work for only one stakeholder viz the stockholder.
One exception has been manufacturing company Semco SA of Brazil where Ricardo Semler has proved that democratization and not decentralization is the real way to let the average worker participate in the decision making process.
The company's continued success and expansion is proof that this is the only way to include the average worker into the decision making framework - one that works for all the stakeholders. This is how true decentralization takes place."

Importance of Decentralization
"1. Greater transparency and accountability.
2. Quick decision making, no long processes
3. Local problems get local solutions.
4. Greater participation by the average worker."

Decision-making in Germany
"Would you say Germany typically has centralized or decentralized decision making?"

Implications of Delegation
"How can one evaluate the implications of delegation in private companies, NGOs, and public companies?"

Divisions Versus Subsidiaries
"I need some clarification of what is the difference between divisions and subsidiaries. Is there any significant distinction? In the decision making process?"

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.."

When is Centralization of Decision-making Better?
"Please tell me the circumstances under which centralization is better than decentralization? Thanks"

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."

The link between Centralization and Decentralization to Public Administration
"What is the link between Centralization and Decentralization to Public Administration"

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."

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."

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

Decentralization to Local Government
"What is the importance of decentralization to local government?"

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?"

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