Difference between centralization and decentralization

What is Centralization?

Centralization is the process of arranging an organization's planning, decision-making, and action-taking processes around a central location or group of managerial staff. The senior management of this kind of organisation holds all significant rights and authority.

Centralization policy, which kept all authority in one central location, was the most often used strategy in all organisations in the past. They have total authority over all middle-level and lower-level management operations. In addition, work may be divided among employees with ease and personal leadership and coordination are also evident.

An important place or team of managers for the organization's planning, decision-making, or action-taking.

However, because all the power rests with the head office, the subordinate employee's function inside the company is decreased owing to the concentration of authority and responsibility. Junior employees are therefore only permitted to carry out the directives of senior managers and perform in that capacity; they are not permitted to actively participate in decision-making. Hotchpotch can also arise from an overabundance of labour, leading to rash judgements. Red tape and bureaucracy are two further drawbacks of centralization.

What is Decentralisation?

Decentralisation is the process by which intermediate or lower level management is given authority and duties by upper level management. It is the exact opposite of centralization, when managers at the departmental, divisional, unit, or centre levels make organizational-wide decisions. Delegation of power and decentralisation are complementary concepts.

Currently, managers decide whether to give subordinates more authority because of the increased level of competition. Because of this, functional level managers have the opportunity to operate at a higher level and have more freedom in their job. Additionally, they share high-level managers' responsibilities, which facilitates prompt decision-making and time savings. It is a very successful technique for corporate organisation growth through mergers and acquisitions.

Decentralisation, however, results in ineffective control over the organisation as it lacks coordination and leadership. Open and unrestricted communication inside the organisation is essential for a successful decentralisation process.

Principal Distinctions Between Decentralisation and Centralization

Regarding the distinction between centralization and decentralisation, the following factors are noteworthy:

1. Centralization is the consolidation of authority and power under the direction of upper management. Decentralisation is the transfer of authority and control from the top level management to the functional level management.
2. The methodical and constant consolidation of power at key locations is known as centralization. On the other hand, decentralisation refers to the methodical transfer of power within an organisation.
3. For small organisations, centralization works best; huge organisations, on the other hand, should adopt decentralisation.
4. Within the centralised organisation, there is formal communication. On the other hand, communication is omnidirectional in a decentralised system.
5. Making a choice takes time in a centralised society where power is concentrated in the hands of one individual. Decentralisation, on the other hand, facilitates improved decision-making as choices are made much more quickly after actions are performed.
6. Centralization has complete coordination and leadership. The top level managers' workload is shared via decentralisation.
7. Centralization is used when an organisation has little control over its management; decentralisation is used when an organisation has complete control over its management.

Conclusion

One of the hottest subjects these days is the distinction between centralization and decentralisation. While some individuals support decentralisation, others believe that centralization is preferable. People used to manage their organisations centrally in the past, but with increased competition and the need for rapid decisions, things have entirely altered, leading many organisations to go for decentralisation.

Since total centralization or decentralisation is impractical, the majority of organisations now include both characteristics. Total centralization in an organisation is impractical as it means that the highest level of decision-making makes all of the organization's decisions. However, complete decentralisation is a sign that there is no oversight of subordinates' actions. Thus, it's important to keep these two in check.