Explain Centralization and Decentralization with advantages and disadvantages.

Meaning of Centralization

Centralization means the authority is centralized at the top level of management. Decisions are made by the higher level managers. It is opposite of decentralization. Top managers make all the decisions. Subordinates simply carry them out.

According to Ricky Griffin,” Centralization is the process of systematically retaining power and authority in the hands of higher level managers”.

ADVANTAGES OF CENTRALIZATION

1.       Specialization management: The higher the specialization of jobs, the greater the need for centralization. Tall hierarchical organizations with functional departments are best managed through centralization.

2.       Complexity management: Specialization of jobs creates complexity. Narrow spans of management also create complexity. Centralization provides advantage to manage complexity. Uniform policies and practices are fostered. Specialists can be used.

3.       Significant decision making: Non-programmed significant decisions require centralized decision making by top management. Decentralization is not suitable for making such decisions. Moreover, management philosophy may also favor centralization in such decision.

4.       Environmental stability: Centralization is the most suitable model for making decisions in stable environment.

5.       Improved capacity at lower levels: Subordinates may lack capacity or be unwilling and inexperienced to exercise decentralized authority. Such situations give advantage to centralization.

6.       Crisis management: When organizations face crisis or risk of failure, centralized decision making by top management has advantage.

7.       Cost effective: High cost of decentralization makes centralization advantageous. Duplication of efforts is minimized.

Disadvantages of Centralization

1.       poor environmental adaptation: Organizational environment tends to be dynamic, complex and uncertain. Centralization cannot quickly adapt to the changing environment.

2.       Poor diversification management: Modern organizations tend to be highly diversified. They are also geographically dispersed. Centralization is not suitable to manage diversified and dispersed organizations.

3.       Unsuitable for programmed decisions: Programmed decisions are routine-type decisions. They are relatively minor decisions. Such decisions are not suitable for centralization. They burden top managers.

4.       Poor management development: Centralization blocks the management development of subordinates. Their skills and talents remain unutilized because of lack of participation and involvement in decision making.

5.       Delayed decisions: Centralization creates multiple layers for decision making purposes. The files move through the hierarchy from subordinates to bosses. This delays decision making.

MEANING OF DECENTRALIZATION

decentralization is the result of delegation of authority. It is devolution of decision making authority downward.

According to Koontz and Weihrich,” Decentralization is the tendency to disperse decision-making authority in an organized structure”.

ADVANTAGES OF DECENTRALIZATION

1.       Quicker and better decisions: it disperses decision making authority close to unit managers who execute decisions. It reduces problems of communication and red tape. This leads to quicker and better decision making

2.       Diversification: decentralization facilitates diversification of products, activities and markets. Profit centers can be established with independence in decision making.

3.       Competitive organizational climate: Decentralization promotes competitive climate for improving performance among divisions and profit centers.

4.       Management development: decentralization encourages managers to exercise freedom and independence in decision making. They learn to make decisions and exercise judgment. This develops managerial competency.

5.       Environmental adaptation: Decentralization helps organizations to adapt to fast-changing environment.

6.       Relieves burden of top management: Top managers are relieved from making routine decisions. They can concentrate on important issues of strategic relevance.

7.       Higher motivation and morale: Decentralization provides power, prestige and status to subordinates. This increases motivation and morale of subordinates.

DISADVANTAGES OF DECENTRALIZATION

1.       Problem of coordination and control: Decentralization provides freedom and independence in decision making. This can lead to inconsistencies in policies, programs and procedures. This can create the problem of poor coordination and control.

2.       High cost: Decentralization can result in duplication of efforts and waste of resources. Human resources need to be trained. This results in increased costs. It is also time consuming.

3.       Unsuitable for specialized services: Decentralization is not suitable in tackling emergency situations. Adjustment to fast changing situation may be difficult.

4.       Handicap in emergency: Decentralization can become a handicap in tackling emergency situations. Adjustment to fast changing situation may be difficult.

5.       Lack of managerial capacity: Decentralization requires competent and skilled subordinates. It may be difficult to find them.

6.       Managerial desires and fears.