About Lesson
Centralization: This is a process of formulating authority in the same place. When top managers develop policy in the head office, it is said that the management has been centralized.
Decentralization: This is a process of formulating authority at different centers, especially in the organization’s branches.
Factors determining the degree of centralization and decentralization of authority
- Costliness of the decision.
- Desire for uniformity of policy.
- Size and character of the organization
- History and culture of the organization.
- Management philosophy.
- Desire for independence.
- Availability of managers.
- Control techniques.
- Decentralization performance.
- Environmental influence.
Advantages of centralization
- Senior management can exercise greater control over the organization’s activities and co-ordinate their subordinates or sub-units more easily.
- With central control, procedures can be standardized throughout the organization
- Senior managers can make decisions from the organization’s point of view as a whole. In contrast, subordinates would tend to make decisions from the point of view of their department or section.
- Centralized control enables an organization to maintain a balance between the different functions or departments. For example, if a company has only a limited amount of funds available to spend over the next few years, centralized management would take a balanced view of how the funds should be shared out.
- Senior managers ought to be more experienced and skillful in making decisions. In theory, senior managers’ centralized choices should be better in quality than decentralized decisions by less experienced subordinates.
- Centralized management will often be cheaper in terms of managerial overheads.
- Centralized decisions are accepted by all staff because they are made by senior management.
- Centralization enables senior managers to know what is happening throughout the organization.
Disadvantages of centralization
- Increase’s stress and burdens senior management.
- Deprives subordinates of job satisfaction and more so in decision making, which affects their work.
- Senior managers do not have better knowledge of local
- Subordinates in centralized organizations are denied the chance to prepare for senior positions.
- Centralizing authority enhances the possibility of top management misuse of power.
- Centralizing authority adversely affects the relationship between management and subordinates.
Advantages of decentralization
- It reduces the stress and burdens of senior management.
- It provides subordinates with greater job satisfaction by giving them more say in decision-making, which affects their work.
- Subordinates may have a more excellent knowledge of local conditions affecting their area of work.
- Decentralization allows greater flexibility, a quicker response to changing conditions, and quicker decision-making.
- By allowing the delegated authority to subordinates, management at middle and junior levels are groomed for eventual senior management positions, because they are given the necessary experience of decision making.
- By establishing appropriate sub-units or profit centers to which authority is delegated, the system of control within the organization might actually be improved.
- By decentralizing authority reduces the possibility of top management misuse of power.
- Decentralization improves relations between management and subordinates.
Disadvantages of decentralization
- Senior management is denied the possibility of controlling the activities of the organization.
- Decentralization of authority undermines the standardization of procedures throughout the organization.
- Senior management is not able to maintain a balance between different functions or departments.
- Subordinate managers’ decisions are likely to be of low quality because they are less qualified and experienced.
- Senior management is deprived of the right to make decisions from the point of view of the whole organization.
- Decentralized operations are often expensive in terms of Senior managers will not know what is happening throughout the organization.
- Decentralized decisions tend to be ignored by subordinates because they are not made by senior management.