Centralisation Vs Decentralisation

  • Post last modified:8 May 2022
  • Reading time:8 mins read

An important aspect of organisational structure is to understand where the power for decision making resides in the organisation. In the centralised organisational structure, the authority or the decision making power resides with the senior management at the top level of the hierarchy, whereas the authority and power are delegated away from the center towards the lower levels of hierarchy in the decentralised organisational structure.

Many large organisations usually operate from various locations, so they decentralise and delegate their authority and decision making powers to the middle level of hierarchy in the organisational structure. The process of decentralisation facilitates faster managerial response and quicker action.

The centralised format of decision making is reserved with senior management in the organisation. In the decentralised form of organisation, there is involvement of different departments, units, and managers at different levels of the organisational structure. As organisations expand, they need to decentralise the decision making power from top management to middle management.

A lot of organisations such as Pizza King, Burger King and McDonald’s use a centralised form of structure for keeping a tab on their business outlets across the world. This process of keeping a tab on business is to make sure that there is consistency in customer service and quality is maintained at every outlet.

Difference Between Delegation and Decentralisation

Delegation and decentralisation are activities that are closely linked to each other. The process of decentralisation has a broader scope and outcome and is an add-on part of the delegation. Delegation entails assigning authority to another person who may be a subordinate.

In the organisational structure, the delegation of authority or power is assigned to the middle and lower levels of the organisation, which is referred to as decentralisation. Delegation involves assigning jobs and tasks by a manager to his subordinates. Decentralisation refers to the distribution of power from the top level of the organisation to the other levels in the organisational structure.

Delegation involves assigning the power and authority from one person to another from different levels in an organisation.In the decentralisation system, the right of taking decisions and delegation of authority is shared by the people at the top level and other levels of the organisation.
In delegation, managers delegate responsibility and tasks to subordinates; however, managers are themselves accountable for the tasks and activities completed by people.Decentralisation has a wider scope and the process of decision making is shared by the people of the department. The departmental head is accountable for the activities of the department.
In delegation, subordinates have to work according to the instructions of the managers and they do not have much freedom.Decentralisation allows employees to work freely and take decisions regarding their work.
Delegation is an ongoing function and every organisation delegates authority and responsibility for getting work done.Decentralisation is an optional decision taken by an organisation. It may become necessary to implement the same for larger organisations.
The process of delegation establishes a superior-subordinate relationship.The process of decentralisation es- tablishes a relationship between the top level and the other departments and leads to the creation of semi-autonomous units.
The delegation of authority can be reversed or taken back when required.In the decentralised system, it is the policy of the management and applies to the different departments.
The degree of delegation is different from department to department and from one organisation to another.The process of decentralisation is the same and it is applicable through the organisational levels.

Centralisation Vs Decentralisation

Centralisation is a form of organisational structure where the top management is involved in setting the vision, mission, procedures, and policies along with the process of decision making. The total power and authority rests with the top management for creating strategies and determining the goals for the organisation.

The decision of the management is communicated to the employees working at the different levels of the organisation. Decentralisation is a form of organisational structure where the top management delegates the authority to the middle and lower levels of management.

Process of decision making rests with the top managementDecision making is delegated across multiple levels in an organisation
Information flows vertically downwardsInformation flows freely both vertically and horizontally
Centralisation system is perfect for smaller organisationsDecentralisation is ideal for large business organisations
Process of decision making is slow with slower responseFaster decision making and quicker response
Motivation level of employees is lowEmployees are highly motivated
The load of work is carried only by the top managementThe load of work gets shared across different levels
There can be chances of conflict of decisionNo chance of conflict of decision
Effective leadership and coordinationBurden and responsibilities are shared

Advantages and Disadvantages of Centralisation and Decentralisation

Easier to implement general policies, practices and action plansMore bureaucratic with extra hierar- chical levels
Prevents unimportant parts of the business from becoming independentLower-level employees are much closer to customer needs and their involvement is important
Easier to coordinate and controlLack of authority with middle managers reduces their motivation level
Benefited by economies of scale (higher production-decreasing cost) and overhead savings can be achieved easilyNo flexibility in customer service; customers do not benefit from this method
Greater use of specialisation of employeesTop management is overburdened with many functions and problems and they are unable to identify the weak and profitable areas
Quicker decision-making capability due to unitary leadershipDifficult to adapt quickly to the changing environment

In a decentralised structure, decision-making is spread out to include more managers of middle and lower-level management in the hierarchy. An example of the business with decentralised structure is supermarket chain.

Advantages and Disadvantages of Decentralisation

The advantages and disadvantages of decentralisation are listed below in table:

Decisions are made at the grassroot level closer to the customerDecision-making is not necessarily strategic
Greater ability to respond to local circumstancesChallenging to ensure consistent practices and policies
Improved level of customer serviceSome diseconomies of work, e.g., repetition of roles may be generated

Facilitates a flatter hierarchy
Strong leadership, when needed in a crisis, might be absent
A better way of management training and developmentFinancial control is difficult to achieve

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