PRINCIPAL AND PRACTICES OF MANAGEMENT
Benefits Of Centralization And Decentralizations Of A Company
A decentralized organization is one in which decision making is not confined
to a few top executives but rather is throughout the organization, with
managers at various levels making key operating decisions relating to
their sphere of responsibility. At one extreme, a strongly decentralized
organization is one in which even the lowest-level managers and employees
are empowered to make decisions. At the other extreme, in a strongly decentralized
organization, lower-level managers have little freedom to make decisions.
Situation in which decision-making power is at the top of an organization
and there is little delegation of authority. It is the opposite of Decentralization.
Centralization and decentralization are really a matter of degree. Full
centralization means minimum autonomy and maximum restrictions on operations
of subunits of the organization.
This issue of centralization and decentralization is a fascinating one.
But you should talk about it only in particular cases, of particular organizations
and particular kinds of decisions.
Decentralization will not work unless you really delegate both responsibility
and authority. This means that the final decisions must be made at that
lower level. Two things stand in the way of this working. One is that
the people who now have the authority may not let go of it. The other
is that the people at lower levels may not want to accept it. And, at
the beginning, some of these people may not be strong enough to handle
it. The process is not as difficult as it may sound. You start at the
top, by asking “What is there that could be decided just as well by somebody
other than me?” And then you keep working this question down the ladder.
You really have to beware of the ‘father knows best’ attitude.
You just can’t beat a decentralized system. It gets decisions closest
to the level where the action really is. Education should have an advantage
in moving into it, because your locations and your people are already
And it really does something for people. The executives are now essentially
running businesses of their own. The company has confirmed their authority
by making it very clear it will not let people dissatisfied with their
decisions ‘jump’ over to the home office. Decisions are more rapid, too.
Most of the company’s new executives are coming up out of this system.
It avoids the evils of bureaucracy. Business is afflicted with this, just
like government. When decisions have to go to the top it’s not just a
question of talking with the chief. His time is limited. So all kinds
of other people up there . . . staff people . . . start to look at the
question too. I’ve never been convinced that more people make a better
decision. It’s OK to say to one individual, “You make the decision, and
I’ll live with it.”.
Decentralization is the process of dispersing decision-making
governance closer to the people. It includes the dispersal of administration
or governance in sectors or areas like engineering, management science,
political science, political economy, sociology and economics. Decentralization
is also possible in the dispersal of population and employment. Law, science
and technological advancements lead to highly decentralized human endeavors.
Decentralization: the transfer of authority and responsibility
for public functions from the central government to subordinate or quasi-independent
government organizations and Core the private sector is a complex and
multifaceted concept. It embraces a variety of concepts. Different types
of decentralization shows different characteristics, policy implications,
and conditions for success.
In centralization, a limited amount of authority is delegated. In decentralization,
a significant amount of authority is delegated to lower levels.
Each form has its advantages and disadvantages and is affected by a number
of factors, such as size of organization and the amount of geographic
dispersion. If the organization is very large, diversified the limitations
of expertise and personal resources will generally lead to decentralization
of authority to the heads of these different businesses. Innovative, where
speed and adaptability to change are characteristics of the business,
tend towards decentralization.
Decentralization gives individual business units autonomy over their own
IT resources other units unless it is essential to the overall organization
policy. The main traits of a decentralized approach include flexibility,
empowerment of individual business units and service orientation. Decentralized
approaches tend to be just as efficient as centralized ones in regard
to meeting individuals needs.
Decentralization also called departmentalization is the policy of delegating
decision-making authority down to the lower levels in an organization,
relatively away from and lowers in a central authority. A decentralized
organization shows fewer tiers in the organizational structure, wider
span of control, and a bottom-to-top flow of decision-making and flow
In a centralized organization, the decisions are made by top order or
on the basis of pre set policies. These decisions or policies are then
enforced through several tiers of the organization after gradually broadening
the span of control until it reaches the bottom tier.
In a decentralized organization, the top executives delegate much of their
decision-making authority to lower tiers of the organizational structure.
As a correlation, the organization is likely to run on less rigid policies
and wider spans of control among each officer of the organization. One
advantage of this structure if the correct controls are in place will
be the bottom to top flow of information, allowing all decisions among
any official of the organization to be well informed about lower tier
operations. For example, an experienced technician at the lowest tier
of an organization might know how to increase the efficiency of the production,
the bottom to top flow of information can allow for this knowledge to
pass up to the executive officers.
Decentralization—the transfer of authority and responsibility for public
functions from the central government to subordinate or quasi-independent
government organizations and the private sector is a complex and multifaceted
concept. It embraces a variety of concepts. A different type of decentralization
shows different characteristics, policy implications, and conditions for
Typologies of decentralization have flourished. For example, political,
administrative, fiscal, and market decentralization are the types of decentralization.
Drawing distinctions between these various concepts is useful for highlighting
the many dimensions of successful decentralization and the need for coordination
among them. Nevertheless, there is clearly overlap in defining these terms
and the precise definitions are not as important as the need for a comprehensive
approach. Political, administrative, fiscal and market decentralization
can also appear in different forms and combinations across countries,
within countries and even within sectors.
Administrative decentralization seeks to redistribute authority, responsibility
and financial resources for providing public services among different
levels of governance. It is the transfer of responsibility for the planning,
financing and management of public functions from the central government
or regional governments and its agencies to local governments. The three
major forms of administrative decentralization -- deconcentration, delegation,
and devolution -- each have different characteristics.
Deconcentration is the weakest form of decentralization and is used most
frequently in unitary states redistributes decision making authority and
financial and management responsibilities among different levels of the
national government. It can merely shift responsibilities from central
government officials in the capital city to those working in regions,
districts, it can create strong field administration or local administrative
capacity under the supervision of central government ministries.
Delegation is a more extensive form of decentralization. Through delegation
central governments transfer responsibility for decision-making and administration
of public functions to semi-autonomous organizations not wholly controlled
by the central government, but ultimately accountable to it. Governments
delegate responsibilities when they create public enterprises or corporations,
housing authorities, transportation authorities, special service districts,
semi-autonomous school districts, regional development corporations, or
special project implementation units. Usually these organizations have
a great deal of discretion in decision-making. They may be exempted from
constraints on regular civil service personnel and may be able to charge
users directly for services.
In an increasingly complex business environment, with all the trends affecting
business today, such as globalization, the information technology explosion,
strategic alliances, increased mergers and acquisitions, heightened competition,
it just isn't possible to still be that one person in control of everything.
Bringing in others to manage is an absolute necessity for survival now.
Owners and managers should concentrate on the activities they do that
bring the most value to their organization. You must perform only "essential
activities" that give the company its competitive advantage over
other companies in the industry.
Devolution is an administrative type of decentralization. When governments
devolve functions, they transfer authority for decision-making, finance,
and management. Devolution usually transfers responsibilities for services
to local governments that elect their own elected functionaries and councils,
raise their own revenues, and have independent authority to make investment
decisions. In a devolved system, local governments have clear and legally
recognized geographical boundaries over which they exercise authority
and within which they perform public functions. Administrative decentralization
always underlies most cases of political decentralization.
Privatization and deregulation shift responsibility for functions from
the public to the private sector and is another type of decentralization.
Privatization and deregulation are usually, but not always, accompanied
by economic liberalization and market development policies. They allow
functions that had been primarily or exclusively the responsibility of
government to be carried out by businesses, cooperatives, private voluntary
Privatization can range in scope from leaving the provision of goods and
services entirely to the free operation of the market in which government
and the private sector cooperate to provide services or infrastructure.
Privatization can include:
- contracting out the provision or management of public services or facilities
to commercial enterprises indeed, there is a wide range of possible ways
in which function can be organized and many examples of within public
sector and public-private institutional forms, particularly in infrastructure;
- financing public sector programs through the capital and allowing private
organizations to participate; and
- transferring responsibility for providing services from the public to
the private sector through the divestiture of state-owned enterprises.
An often ignored dimension of decentralization is whether it emerged explicitly
by policies, or not. Decentralization in the absence of reforms is also
referred to as “silent decentralization.” Consequently, it distinguishes
itself mainly by its potential origins: network changes, initiative shifts,
policy emphasis developments, or resource availability alterations.
Where as variety in degree of decentralization across the world is a fact
however there is no consensus in the empirical literature over the questions
like ‘which country is more decentralized?’ This is because decentralization
is defined and measured differently in different studies
"On the source of ‘decentralization instrument’ there are two strands
in the writing that argue for two different approaches to measure fiscal
autonomy. One gives more weightage to devolution of tax authority as an
instrument of decentralization and hold it crucial for sub nationwide
autonomy, the other gives more weight to the nature of intergovernmental
transfers as an instrument impacting upon the sub national behavior and
effecting their autonomy and accountability. Thus former choose to focus
on fiscal policy .
When it comes to the measurement of fiscal decentralization ‘the share
of sub national expenditures and revenues’ is considered the best indicator.
This is because fiscal instruments are easier to measure while regulatory
and financial instruments are extremely complex and difficult to measure
statistically because nowhere transfers remain strictly confined to the
Advantage of decentralization:
Decentralization has many advantages, including:
i. Top management is relieved of much day to day problem solving and is
left free to concentrate on strategy, on higher level decision making,
and coordinating activities.
ii. Decentralization provides lower level managers with vital experience
in making decisions. Without such experience, they would be ill-prepared
to make decisions when they are promoted into higher level positions.
iii. Added responsibility and decision making authority often result in
increased job satisfaction. Responsibility and the authority, that goes
with it makes the job more interesting and provides greater incentives
for people to put out their best efforts.
iv. Lower level managers generally have more detailed and up to date information
about local conditions than top managers. Therefore the decisions of lower
level management are often based on better information.
v. It is difficult to evaluate a manager's performance if the manager
is not given much latitude in what he or she can do.
Disadvantages of decentralization:
Decentralization has four major disadvantages:
i. Lower level managers may make decisions without fully understanding
the big picture. While top level managers typically have less detailed
information about local operations than the lower level managers, they
usually have more information about the company as a whole and should
have a better understanding of the company's strategy.
ii. In a truly decentralized organization, there may be a lack of coordination
among autonomous managers. This problem can be reduced by clearly defining
the company's strategy and communicating it effectively throughout the
iii. Lower-level managers may have objectives that are different from
the objectives of the entire organization. For example, some managers
may be more interested in increasing the sizes of their departments than
in increasing the profits of the company. To some degree, this problem
can be overcome by designing performance evaluation system that motivates
managers to make decisions that are in the best interests of the organization.
iv. In a strongly decentralized organization it may be more difficult
to effectively spread innovative ideas. Someone in one part of the organization
may have a traffic idea that would benefit other parts of the organizations.
Strengths of Decentralization Characteristics
• Emphasis on: bottom-up, political, cultural and learning dynamics.
• Decision-making: democratic, participative, and detailed.
• Organizational change: emerging from interactions, organizational dynamics.
Centralizations is the process by which the activities of an organisation,
particularly those regarding Planning decision-making, become concentrated
within a particular location and group. In political science, this refers
to the concentration of a government's power - both geographically and
politically, into a government. In business studies centralization and
decentralization is about where decisions are taken in the chain of command.
A centralized, system is one in which most communications are routed through
one or more major central hubs. Such a system allows certain functions
to be concentrated in the system's hubs. Another benefit of centralization
is the ease of maintaining accurately updated lists of data that can be
easily accessed from all points. Centralization weaknesses are centered
on the systems heavy reliance on a few central components; if the system's
hubs are put out of operation, either accidentally or through hostile
action, the system and its peripheral components are severely affected.
The Advantages of Centralized Information Systems:
The main advantages of centralized systems are that they provide centralized
control using established technology and vendor’s .They thus involves
less technical risks. Information Systems professionals providing highly
reliable operation maintain such systems. There should be no confusion
over responsibilities and the software and hardware used should interface
easily. Duplication of effort, resources and expertise is also reduced,
saving cost and time.
The Disadvantages of Centralized Information Systems:
Centralized systems entail a high initial cost disadvantage. Furthermore,
the information systems professionals who install and operate such systems
are also expensive. Due to one central system carrying out all the requested
tasks, this system is obviously going to be much slower than a decentralized
arrangement where each business unit has its own autonomous system for
local tasks .Similarly, local, independent processing is not allowed and
the entire information system is dependent on the one cpu. If the cpu
fails, the entire system is inoperable.
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.
Factors Determining Degree of Decentralization:
Basic question that arises while designing the organization structure
is how much to decentralization the authority . Managers cannot ordinarily
be for against decentralization of authority .Most of these factor may
be beyond the control of individual managers Such factor are of the following:
1. Size of Organization
.Decentralization depends on the size of the organization. The larger
the size of an organization, the more urgent is the need for decentralization
.In an large organization, more decision are to be made at the more places
2.History of the Organization
Decentralization of authority depends on the way the organization has
been built up over the period of time those organization which expand
from within the direction of owner founder show a marked tendency to keep
The management philosophy of top level managers has considerable influence
on the extent to which authority is decentralized .In fact decentralization
is a kind of management philosophy to regulate organizational process
including decision making .
4. Availability of managers
Availability of managers directly affects the degree of decentralization
because exercise of authority requires competence on the part of those
who exercise authority.
Centralization and decentralization refer to the extent to which managerial
authority is concentrated at the higher levels of management, or distributed
down the organizational hierarchy.
In a centralized organization power and authority is concentrated at higher
levels of management. Managers at higher levels take decisions even in
minor matters, while managers at lower levels just follow instructions.
In comparison, decentralized organizations have authority and power delegated
more widely. The top management takes only the major decisions such as
overall objectives, targets, budgets, resource allocation and the like.
Lower level managers have substantial discretion and flexibility to decide
details of their actions within the overall the limits of higher management
decisions. For example, in a decentralized organization, a traveling salesman
may be free to plan his day to day schedule of sales call provided he
is able to meet his target of total number and types of sales calls to
be made every week.
Every organization, to be effective, must have a appropriate balance between
centralization. No organization can become effective by adopting extremes
of either centralization or decentralization. In fact, it is impossible
to have an organization with either absolute centralization or absolute
decentralization. Absolute centralization implies that all decisions are
taken by just one person at the top of the organizational hierarchy. No
other person in the organization has any discretion to make any decision.
Further, this will mean heavily under utilizing the brain power of human
beings. Finally, human beings do not like to work under such restricting
conditions, and it will be almost impossible o find suitable persons to
work in such organization.
An absolutely decentralized organization also cannot exist in reality.
Such an organization implies that everyone working in the organization
is totally free to act in any manner he or she choose.
The following factors influence the design of the extent and type of decentralization
in any organization.
a) Complexity of Task.
b) Subordinate Training.
c) Subordinate Motivation.
d) Manager Capability.
Centralization vs. Decentralization
The advantages and disadvantages of centralized versus decentralized organizational
structures lies greatly in the inherent qualities and effects of the structures
themselves. Robbins and Coulter describe this very well, "If top
managers make the organization's key decisions with little or no input
from below, then the organization is centralized." Companies which
wish to consolidate power and decision-making abilities at the top of
the organizational chart, tend to be centralized organizations. If the
CEO of a corporation has a particular vision. As the textbook states,
this is helpful for companies who need to be stable or are facing a crisis
and need one source of decision-making to lead them. These sorts of organizations
are becoming rarer, as employees become smarter and organizations become
larger, however a few do still exist. Consider the Oakland Raiders, a
team which is widely acknowledged as being run completely by its owner,
Al Davis or a monarchy such as Saudi Arabia, or an absolute theocracy,
such as the Vatican City. Centralized structures are becoming rare because
of their many disadvantages. Due to power being consolidated at the top
of the organization, risk is great if the top of the organization becomes
incapable of leading the organization. Employees also will feel less motivated
to perform for the organization as they will not have an avenue for sharing
their ideas on how to improve the organization.
Decentralized organizations are becoming more popular as the ability for
organizations to decentralize increases. Decentralization allows organizations
to take advantage of division of labor by sharing decision-making across
the organization.. Another advantage of decentralization is allowing for
the managers of business areas to actually use their first hand knowledge
and experience to improve their areas. By trusting the individuals within
the organization to obtain accurate information and use their minds to
provide appropriate analysis.
Decentralization and centralization should not be the confused because
of the tendency of using opposite is expected to go on stream.
The term paper opportunities provided to know the how Decentralization
and centralization the and help a good management system in the industry
in potential geographical location and convincing them to attract more
customers so that new business opportunities of the firm can be explored.
Through this term paper, it could be concluded that people are not much
aware about the various way of management system. services was considered
as unsought good which require hard core selling, but in changing trend
in income and people becoming finally literate, the demand for decentralization
and centralization system of management is increasing day by day.
So, at last the conclusion is that there is tough competition ahead for
the company so if management system is better companies’ position is better.
Last but not the least I would like to thank for giving me an opportunity
to work on this topic of Decentralization and centralization and Operation.
Principal and Practice of Management
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