Centralization and Decentralization in Organizational Structure

Centralization and Decentralization in Organizational Structure

What is Centralization Organizational Structure?

Centralization is the tendency to concentrate decision making authority at the top level of an organization. To the extent that authority is not delegated, it is centralized. Thus, an organization structure is centralized if its main area of authority is handled by a few senior managers at the head office. Then managerial functions of planning, research, development, personnel, and finance are delegated with enough authority. There is little diffusion of appropriate power because the senior managers at the center do not want to charge more work to their subordinates.

What is Decentralization Organizational Structure?

Decentralization is the tendency to disperse decision-making authority throughout all levels of management by extensive delegation. To the extent that authority is not delegated, it is centralized.

Under decentralization, power and control are systematically delegated to lower levels in the organization. Decentralization is pursued

• When the environment is complex and uncertain;
• When lower-level managers are talented; and
• When decisions being made are minor

Decentralization involves:

• Determining what authority to push down to subordinates;
• Developing policies and procedures to give to associates on how to use this authority
• Controlling the use of this authority
• Geographical relocation of activity.

Factors That Influence the Degree of Centralization Or Decentralization Organizational Structure

Managers cannot ordinarily be for or against the decentralization of authority. They may prefer to delegate authority, or they may like to make all the decisions.

Although the temperament of individual managers influences the extent of authority delegation, other factors also affect it. Most of them are beyond the control of individual managers. Managers may resist their influence, but no successful managers can ignore them.

These factors include:

Management Philosophy

This is the orientation of top management. Sometimes top managers do not interfere with the authority and information that they hold. At other times, top managers keep authority not just as a desire for status or power but because they simply cannot give up the activities and authority that they enjoyed before they reached on top. Top managers may see decentralizations as a way that people create their own status.

Costliness of The Decision

This is probably the most essential factor as managers are reluctant to delegate authority for crucial decisions. Generally, the more costly the action to be decided, the more likely it will be made at higher levels, e.g., an airline‘s decision to purchase airplanes will be made at top levels.

In contrast, a decision to acquire desks may be made at the operational level. Similarly, quality control in a drug manufacturing company where a mistake could risk lives would typically be made at higher levels.

Importance of the Decision

If decisions at lower levels affect important aspects of the organization, then the degree of centralization will be restricted.

Volume/Number Of Organizational Decisions At Lower Levels

The greater the number of decisions being made by an organization at lower levels, the greater the degree of decentralization.

Desire for Uniformity of Policy

Usually, where uniformity of policy is required, centralization is favored. An organization may wish to ensure that customers are treated alike concerning quality, price, delivery, and service or that vendors are treated alike concerning quality, price, delivery, and service or treated with the same policies or public relations are standardized. The uniformity of standards makes it easier to compare relative efficiencies of departments and to keep costs down.

Size and Character of the Organization

The larger the organization, the more need to decentralize. Large organizations with vast numbers of people must be divided into reasonably autonomous divisions to facilitate efficient management.

Sometimes, decisions may be slow because of the number of managers and specialists who must be consulted. This could be expensive, and therefore, whenever feasible, the organization should be centralized. The cost of large size may be reduced by organizing the enterprise into small units.

Other Factors include;

·         History and culture of the enterprise

·         Desire for independence

·         Availability of managers/Manager talent

·         Control Techniques

·         Willingness of employees to accept responsibility

·         Rate of growth of the organization

 

 

Advantages of Centralization Organizational Structure

Centralization Organizational Structure means that decisions like procurement, for example, are all executed at the top. Basically, a centralization decision is influenced by factors such as the cost of decisions, desired uniformity of policy, subordinates’ desire for independence, the economic size of the enterprise, and the organization’s history.

Given today ‘s magnitude of purchasing expenditures, then there is a dire need for efficiency in the purchasing department.

Centralization enhances efficiency in that: –

(i) It enhances control; Control is monitored and left entirely to one or a few persons; thus, more excellent monitoring

(ii) It eliminates inefficient duplication of effort; Therefore, no time is wasted in the procurement process

(iii) Centralization promotes certainty because decisions are made in one place by one or few persons. Thus the required specifications are known to be met in advance.

(iv) Saves on cost; Centralization of a large organization’s procurement policy saves on the cost of purchase because the goods are bought in large volumes and thus quantity discount.