Centralization vs Decentralization
In any organization, there is a way of making hierarchy in order to ensure smooth organizing of work to drive the business.
This has been possible because everyone knows what role they are going to play. What is being required out from them in order to layout a proper business plan for the organization?
As it is rightly said that hierarchy is laid down in an organization in order to ensure smooth organizing of work. These hierarchies are laid in terms of planning power and the decision making process.
BUT do you know that in any organization there are two structures of making hierarchy Centralization and Decentralization?
One cannot sideline the importance of Centralization and Decentralization as a hierarchical structure, as they are very crucial to any organization
Both Centralization and Decentralization are two different structures for distributing authority in any firm. It does still exists and companies have aligned different structures for Centralization and Decentralization.
Centralization in an organization involves planning and decision-making power is given completely in the hands of senior management. It implies that all power and authority is concentrated at the highest level.
Decentralization in an organization involves the delegation of power by middle management or lower management.
Unlike Centralization, Decentralization implies that all power, authority are distributed amongst middle and lower management.
Therefore, we should keep in mind that both Centralization and Decentralization have an important set of structures. They are very crucial in terms of the company’s authority distribution.
In this guide, we are covering all the essential details for you to understand the difference between Centralization and Decentralization, so as you know about these two roles.
Comparison Table Between Centralization and Decentralization (in Tabular Form)
| Parameter of Comparison | Centralization | Decentralization |
|---|---|---|
| Definition | Centralization in an organization involves decision-making capability in the hands of top management. It implies that all power, authority is upheld at the topmost level. | Decentralization in an organization involves decision-making capability through middle management or lower management. Power , authority are upheld by lower management. |
| Flow of Communication | Vertically aligned | No alignment, it is free and more open |
| Decision | Decision-making process is slower | This is comparatively faster. |
| Authority | Power is in hands of Senior management | Middle and Lower management have power |
| Suitability | No proper control over organization | Proper control over organization |
| Implementation | Implementation in small sized firms | Implementation in large sized firms |
What is Centralization?
Centralization in an organization implies holding of authority through the senior management.
We can see that the authority is consistent and a systematic hierarchical pattern is observed in Centralization
Centralization in any organization has the flow of communication designed upright, so as the middle and lower management has to strictly follow the directions of the senior management.
Since authority, power is influenced by senior management. The decision-making process is time-consuming and slower.
Following are some points in Centralization to be known;
- Vertically allied movement of communication
- Decision-making progression is slower
- The power lies with Senior management
- Leadership has apt coordination
- Implementation in small-sized organizations.
The primary objective of Centralization structure in any business is to involve hierarchical structure whenever there is inadequate control over the organization
Therefore, it is equally important to also know, that Centralization is quite important for any organization who are looking to ensure their vision, the mission is fulfilled.
Thus, it is required to understand that Centralization plays a very important role in any organization and proper information should be known about it.
What is Decentralization?
Decentralization in an organization involves spreading power, accountability, and responsibility to various management levels.
Decentralization in any organization has the flow of communication designed freely, so as the middle and lower management has full freedom to overlook the strategies for the organization.
Since the authority and power lie in the hands of middle and lower management. The decision-making process is faster and not so complex.
Following are some points in Decentralization to be known:
- The flow of communication is free and open
- Faster decision making and execution
- Lower management has the authority to work.
- There is significant control over the organization.
- Implementation in large-sized organizations
The primary objective of the Decentralization structure in any business is to reduce the amount of burden and responsibility equally among lower and middle management.
Therefore, it is equally important to also know, that Decentralization is quite important for any organization that is looking to systematically distribute the authority among the hierarchy.
Thus, it is required to understand that Decentralization plays a very important role in any organization and adequate information should be identified about it.
Main Differences Between Centralization and Decentralization
Although both Centralization and Decentralization are important for an organization. However, Centralization and Decentralization have a lot of differences with respect to decision making, power and authority delegation.
- The flow of communication is vertical in centralization organization structure, whereas it is quite open and free in Decentralization.
- Decision-making process is faster in Decentralization whereas it is slower in Centralization
- Centralization is more suitable for small-sized firms whereas Decentralization is suited more for large-sized firms.
Frequently Asked Questions (FAQ) About Centralization and Decentralization
- Is decentralization better than centralization?
Decentralization is better in those organizations which have a lower number of employees working in the company.
For the companies that have a high number of employees, the centralisation process is much better as the decision should be taken up by the top management people and the same will be implemented throughout the company. - What are the advantages of centralization and decentralization?
The advantage of the centralization process is that the middle and the lower level people do not have to think about the decisions of the company while on the other hand, the disadvantage is that sometimes the decisions taken up by the higher level may not prove worthy for the company.
The advantage of decentralization is that every employee of the company present at any level knows about the happenings of the company and the disadvantages that the lower-level people may not have the capability of making the right decision for the company. - What is centralized decision making?
Centralization decision making refers to the type of process in which the major and crucial decisions of the company are taken by the top-level or on the basis of the company.
The middle and the lower-level employees of the company do not have a say in the decision-making process of the company. - Is Apple a centralized or decentralized company?
The Apple company is an example of a centralised company. The major and important decisions of the Apple Company were taken by Steve Jobs and the other top management people.
- What does centralization mean in government?
The best example to understand the meaning of a centralized government is taking the example of the Korean Government.
All the decisions which are political and economic are taken by the authorities of the government.
In such a government, different levels are made and each level has the authority of taking certain decisions related to a particular area. - What are the advantages of a centralized government?
The major advantage of a centralized government is that it has a focus vision. It establishes common goals for all the segments and helps them in working together for making society a better place to live.
Also, a centralized government is capable enough to utilize the budget in a proper way. - What are the types of centralization?
Centralization is a method by which the power is distributed in the upper, middle and lower levels of the organization.
There are three types of centralization. The first type is the departmental centralization. The second type is the performance centralization and shirt type is the management centralization.
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Conclusion
While both Centralization and Decentralization are quite important for any organization in order to understand the authority and power delegation. For some organizations, Centralization is more favorable whereas some prefer decentralization.
In ancient times, people used to function their organizations in a centralized way, but this situation has completely changed due to increased organization’s complexity of decision making, they have opted for decentralization.
Full concentration in the organization is impractical because it means that every decision of the organization is made by senior leadership.
On the other hand, overall decentralization is an indicator of the inability to control subordinate activities.
So, in general, there should be a proper balance between Centralization and Decentralization in terms of the authority delegation.
Both the senior and lower-middle management should contribute to achieving the overall mission and goals of the organization.
Word Cloud for Difference Between Centralization and Decentralization
The following is a collection of the most used terms in this article on Centralization and Decentralization. This should help in recalling related terms as used in this article at a later stage for you.
References
- https://managementmania.com/en/centralization
- https://theinvestorsbook.com/centralization.html
- http://www.yourarticlelibrary.com/organization/decentralisation-meaning-advantages-and-disadvantages-of-decentralisation/25703
- https://theinvestorsbook.com/decentralization.html
Piyush
He is the founder of AskAnyDifference and has the authority to write on topics like Finance, IT, Law and Science. The Wall Street Journal calls him a top differentiator on the web, Forbes says he owns one of the top websites about "Difference Between" various terms, and Entrepreneur Magazine says he founded one of the 100 most brilliant ideas.