Hello everyone, in the previous topic we were talking about Industrial Policy Resolution, Multi-National Corporations (MNC), Public Enterprise Policy Under New Economic Policy, and SSI Policy. Today we are going to talk about What are Centralization and Decentralization.

Centralization and Decentralization

Centralization

Centralization means concentration of power of decision making at a point or in a few hands In other words, all the important decisions and actions at the lower levels are subset to the approval at top management.

“Centralization is the systematic and consistent reservation of authority at central points in the organization”.

 The implications of centralization of authority are as given below-

• Reservation of decision making power in regard to planning, organizing, co-ordination and control at the top level.
• A Reservation of operating authority with the middle level managers.
• Operations at lower levels being subservient to command, consent and control by the higher authority in line.

Need of Centralization

Uniformity of Action

Under centralization, uniform policies and procedures are prepared and implemented in all the units of the organization. Such uniformity is often desirable in personnel, purchasing, and advertising activities. Therefore, authority in these areas should be centralized.

Successful Handling of Emergencies

In emergencies like uncertain business conditions, acute competitions, or when conditions are such that they will endanger the very existence of the organization, centralization of authority is pertinent. Centralization of such circumstances will help in taking rational decisions from both short-term as well as long-term perspectives to meet such emergencies. It also ensures prompt action necessary to meet the situation.

Facilitates Personal Leadership

In small and medium-sized enterprises, success. In an early stage of a big enterprise, centralization is also preferred. In both cases, operations on a small scale and top executive can concentrate entire authority with himself. It facilitates personal leadership and may result in quick decisions and imaginative actions, which are essential for the success of the business.

Facilitates Integration

Under centralization, the organization moves like one unit. It unites and integrates the total operations of the unit. It keeps all parts of the organization moving together towards a common goal. It assures uniformity of standards and policies among organizational units. The manager acts as a unifying force and provides direction to enterprise activities.

Advantages of Centralization

The following are the advantages of centralization-

Facilitates personal leadership

Personal Leadership contributes greatly to, the success of all concerns. Centralization under an able leader quickens decisions, makes action imaginative and enterprising, and allows high flexibility. The small concern thus vies with big competitors successfully. In fact, when a high concern decentralizes, it is only attempting to re-establish such small entrepreneurial units for successful operation.

Promotes uniformity at action

In areas like purchase, personnel, and advertising in a multi-unit concern, all the units should act in the same way. Such uniformity can come only when the major management decisions are made by a central authority, administratively higher than the operating units.

Makes possible successful handling of emergencies

Centralization of decision-making is very desirable when emergency decisions have to be taken.

Facilitates personal leadership

Personal leadership such decisions affect all units.

Provides for integration

Central direction promotes unification and integration of the total operation of the enterprise. If decentralization is carried too far, such integrations become difficult.

Disadvantages of Centralization

The following are the disadvantages of centralization-

1. It is not likely to motivate the managers in the lower echelons of the organizational structure.
2. Taking of important decisions is likely to get delayed because, each and every time the operating personnel would be expected to refer to the top management for the clearance of their proposals.
3. The top management will unnecessarily get over burdened with routine organizational processes.

Decentralization

Decentralization refers to the systematic effort to delegate to the lowest level all authority except that which can only be exercised at central points.

Decentralization is concerned with the placement of authority with reference to the responsibility. The placement of responsibility is not a primary concern because work must be assigned to the place where it is to be done, or its accomplishment becomes a physical impossibility.

In the words of Henery Fayol , everything that goes to increase the importance of the subordinate role is decentralization; everything that goes to reduce it is centralization.

– Henery Fayol

Decentralization is open to a number of interpretations it may be used to refer of –

• Departmentation of activities.
• Location of actual performance.
• The dispersal of the centres of authority and decision making at various levels in the organization.

Advantages of Decentralization

The following are the advantages of decentralization-

1. It lessens the burden of top management- The chief executive is unburdened of the routine problems. Decentralization is the only remedy to unburden him of routine matters.
2. Its product and market imphasis- A competitive market requires an enterprise to perform better than its competitors. A centralized management cannot be so much all knowing, with the result that dents are made in its market by its competitions.
3. It improves motivation- Research studies indicates that centralized organization provides better motivation to its managers.
4. It makes diversification easy- Senior executives attend to major problems and so their abilities are not over taxed. Properly divisionalised organization to diversify products and markets helped much by proper decentralization.
5. It improves the performance of managers- Middle and lower management levels have more job interest.
6. Weak managers can not hide their short comings and goal, your managers can be appraised more realistically.
7. The company can obtain greater flexibility and became trustful.
8. The results for which managers can be held to account are more easily determined.
9. There can be a quicker response to environmental factors. When decisions are made where and when, the need arises rather than waiting for the head office approval.
10. Management development made possible. If persons with a potential for management jobs are put on the job, they can be further developed. MDP is at its best in a decentralized organization.

Disadvantages of Decentralization

The following are the disadvantages of decentralization-

1. It is not likely to motivate the managers in the lower echelons of the organization structure.
2. The top management will unnecessary get over burdened with routine organizational processes.
3. Taking of important decisions is likely to get delayed because each and every time the opeating personnel would be expected to refer to the top management for clearance of the proposals.

So, that is all for today guys see you in our next blog. If you like our article please don’t forget to share with others & follow our Instagram page for your daily dose of Motivation.

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Grooming Urban

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