Centralization and Decentralization

Centralization means reservation of authority at central point within the organization. In centralization, control and decision-making reside at the top levels of management. Centralization may become essential to provide unified direction to activities and keep integration. It ensures overall organizational perspective. Take advantage of outstanding leader in early stages of enterprise for taking quick decisions. Centralization of decision-making ensures prompt action necessary to meet the emergencies. Essential for small organization to survive the competition.

•The cost and risk associated with decision which could have a heavy impact on performance

•An individual manager’s preference for a high degree of involvement in detail and confidence in subordinates. Some may prefer to delegate, while some may not

•The history of an organization culture say under strong leader may have centralized structure

•Lack of abilities of lower-level managers may create a lack of faith in them. Thus make it difficult to decentralize

Firms that grant substantial decision making authority to the managers of subunits are referred to as decentralized organizations. Most firms are neither totally centralized nor totally decentralized. Decentralization of authority means dispersal of decision-making power to the lower levels of the organization. Decentralization refers to the systematic effort to delegate to lowest levels of authority except that which can only be exercised at central points.

Reduction in the burden of Chief Executive who has to bear the entire burden of decision-making in centralization. Decentralization of authority reduces his burden as he delegated a part of his authority to the subordinates and thus enabling him to focus on other important functions