Cettralization And Decentralization

Centralization and decentralization help to coordinate organisational activities. While delegation refers to assigning responsibility and authority to people from one level in the organisational hierarchy to the other, centralization and decentralization refer to the extent to which authority and responsibility are passed to people at lower levels. If authority to make decisions is retained at top levels, the organisation is said to be centralized; if the decision-making authority is distributed widely throughout the organisation and lower level managers have the authority to use financial and non-financial resources, the organisation is said to be decentralized.

Decentralisation of Authority

According to Allen, "Decentralisation means the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at the central points". Everything that goes to increase the importance of the sub-ordinates role is decentralisation. In a large and complex organisation, management cannot centrally control for everything.

Decentralisation of office means each department of the concern possesses its own office. There is no central office. Each department has supervisors, clerks, typists, etc. There is a delegation of authority to the lower levels. Thus the authority to take decision is delegated to the managers, Purchase Managers, Sales Managers, Works Managers, etc. The Managers are responsible to their superiors.

Reasons for Decentralisation

The reasons for the decentralisation of authority in an organisation are: 

1. Larger size of an enterprise needs decentralisation. It is difficult for the top management to make all the decisions at a time.

2. Growth and diversification of activities leads to overburdened work. It is difficult to have an effective direction when the work is unwieldy. 

3. The increase in competitive market calls for decentralization. 

4. Training of executives leads to decentralization.

5. External and internal factors lead to decentralization. 

Advantages of Decentralization

1. The chief executive of the firm will be free from the burden of overloaded problems arising in different departments. To make the top officials free, the adoption of decentralisation is needed. They, then, can attend to major problems. 

2. Secrecy can be maintained, because all the papers of a department are kept by the department itself. In a centralised one, secrecy cannot be maintained. 

3. Research can be facilitated to have more efficiency in production. 

4. Co-ordination takes place from the low level which is preferred. In a centralised one, coordination takes place at the top level.

5. Since each department is assigned duties and is answerable, each department takes initiative so that better results are produced.

6. It avoids confusion and promotes speed in decision-making.

7. Lower level executives can introduce new ideas and techniques.

8. It is easy to achieve flexibility at all levels of management.

9. Achievement of better management employee relation is possible. 

10. Efficient practice of management principles is possible. 

Limitations of Decentralisation

1. Many competent executives are required to work because many departments may be there. 

2. The operating cost is very high, because many persons are employed.

3. Co-ordination amongst the departments becomes a problem.

4. Chance of uniformity of action becomes less.

5. Top management may not be able to exercise effective control. 

Factors determining Decentralization

While deciding the degree of decentralization in a particular organisation, the following factors should be kept in view:

1. In large and complex organisations there is greater need for decentralization. 

2. When the production and sales of an enterprise are geographically scattered, there is great pressure for decentralization of authority.

3. In a company having several diverse product lines, decentralization is not only necessary but beneficial.

4. If it is expanded through amalgamation or absorption, it is likely to be more decentralised.

5. When the top executives believe in individual freedom, there will be a high degree of decentralisation.

6. Lack of trained executives will restrict decentralisation.

7. Basic functions like production and sales are more decentralised than staff functions, such as personnel, finance, etc.

8. In case communication system is effective, decentralization should be advocated. 

9. Environmental factors exercise significant influences on the degree of decentralization. 

Centralization Of Authority 

According to Allen, "Centralization is the systematic and consistent reservation of authority at central points within an organisation".

Centralisation of authority means all office works are carried on in a central place and managed by a single top official. It implies that decisions pertaining to office matters are taken at the top level. The other departments will have to do duties assigned to them. Centralisation may be physical and functionalit

Centralization increases the importance of the central authority in the organisation and reduces the importance of sub-ordinates.

Centralization is desirable in the planning and control of the management. It is desirable in the determination of objectives of the organisation. It is desirable in legal and governmental relationship. It is desirable in diversification, modernization, expansion or contraction of the business activities of the organisation.

Advantages of Centralization

1. The office manager can distribute the work equally amongst the members of the staff. In decentralised method, some members of the staff have less work while some are overloaded. This unpleasant situation is avoided by equal distribution.

2. Under centralisation, duplication of work and expenditure are eliminated, e.g., typewriter, duplicators, typists, stenos, etc. In centralisation, there will be one Section consisting of typewriters and typists-typist pool. Otherwise in decentralisation, every department has a typist and a typewriter. Therefore, there is less expenditure.

3. Better supervision is possible by a single man, because similar job is centralised; otherwise many supervisors have to be appointed.

4. Each worker will have to perform a particular type of work. He has to do it again and again. When he does a job over and again, naturally he gets speed in the job and becomes a specialist in the particular work.

5. Centralisation brings uniformity of action. Uniformity of action can be attained when a centralised authority manages the operating units.

6. There is no need to give overtime work to any department, as there are many clerks to handle the work without difficulty.

7. Quick decisions can be taken. Expert advice can be made available for managing the system. 

Thus centralization results in greater productivity, low cost, personal utilization and greater administrative convenience.

Disadvantages of Centralisation

1. If one requires any information, he will have to approach the central office. If the central office is far, then there is a delay in getting the information.

2. The section-heads suffer from an inferiority complex for every information, the central office (supreme) is to be approached.

3. The staff working in the central office may feel proud, at the same time such feelings may wound the staff working in different sections.

4. Since the central office is overloaded, it is possible that mistakes or errors will creep in. 

5. Too much concentration of authority or control over others may spoil the interest and initiative of the sub-ordinates. 

6. Delays in accomplishing the work owing to the transmitting of the records from and to centralized units.