Difference Between Centralization and Decentralization

In any organization, there is a way of making a hierarchy in order to ensure the smooth organisation of work to drive the business.

This has been possible because everyone knows what role they are going to play. What is required from them in order to lay out a proper business plan for the organization?

As it is rightly said that hierarchy is laid down in an organization in order to ensure the smooth organisation of work. These hierarchies are laid in terms of planning power and the decision-making process.

One cannot sideline the importance of Centralization and Decentralization as a hierarchical structure, as they are very crucial to any organization.

Centralization and Decentralization are different structures for distributing authority in any firm. It still exists; companies have aligned different structures for Centralization and Decentralization.

Key Takeaways

1. Centralization refers to the concentration of power and decision-making authority in a single central location or individual.
2. Decentralization refers to delegating power and decision-making authority to multiple locations or individuals.
3. Centralization and decentralization can have different advantages and disadvantages depending on the context.

Centralization vs Decentralization

The difference between Centralization and Decentralization is that centralization in an organization involves planning, and decision-making power is given entirely in the hands of senior management. It implies that all power and authority are 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 and authority are distributed amongst middle and lower management.

Therefore, we should keep in mind that both Centralization and Decentralization have an essential 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.

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Comparison Table

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 and authority are upheld at the topmost level.	Decentralization in an organization involves decision-making capability through middle management or lower management. Power and authority are upheld by lower management.
Flow of Communication	Vertically aligned	No alignment; it is free and more open
Decision	The decision-making process is slower	This is comparatively faster.
Authority	Power is in the hands of Senior management	Middle and Lower management have the power
Suitability	No proper control over the organization	Proper control over the organization
Implementation	Implementation in small-sized firms	Implementation in large-sized firms

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What is Centralization?

Centralization in an organization implies holding authority through 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 that the middle and lower management has to follow the directions of the senior management strictly.

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;

1. Vertically allied movement of communication.
2. Decision-making progression is slower.
3. The power lies with Senior management.
4. Leadership has apt coordination.
5. Implementation in small-sized organizations.

The primary objective of the Centralization structure in any business is to involve a hierarchical structure whenever there is inadequate control over the organization.

Therefore, it is equally important also to know that Centralization is essential for any organization looking to ensure its vision, the mission is fulfilled.

Thus, it is required to understand that Centralization plays a vital 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 that 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:

1. The flow of communication is free and open
2. Faster decision-making and execution
3. Lower management has the authority to work.
4. There is significant control over the organization.
5. 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 also to know that Decentralization is essential for any organization looking to systematically distribute authority among the hierarchy.

Thus, it is required to understand that Decentralization plays a vital role in any organization, and adequate information should be identified about it.

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Main Differences Between Centralization and Decentralization

Although both Centralization and Decentralization are essential for an organization, however, Centralization and Decentralization have a lot of differences with respect to decision-making, power and authority delegation.

1. The flow of communication is vertical in the centralization organization structure, whereas it is pretty open and accessible in Decentralization.
2. The decision-making process is faster in Decentralization, whereas it is slower in Centralization.
3. Centralization is more suitable for small firms, whereas Decentralization suits large firms.

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References

1. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-6486.1992.tb00674.x
2. https://www.jstor.org/stable/1909469
3. https://onlinelibrary.wiley.com/doi/abs/10.1111/0952-1895.00150