Joginder Grewal

Assistant Professor
N.C. College of Engineering
 In any business organization, concentration of authority
and powers in the hands of top management is referred to
as centralization, everything which goes to reduce the
importance of subordinates role in an organization is
known as centralization. In such a type of office
organization, the authority and powers of each and every
activity lies in the hands of top few, say office manager and
his immediate subordinate, and other subordinates play
the second and subsequent fiddles. In fact, they are not to
play any role. Instead they asked to work and only work
according to the dictates of what the boss wants and
orders.
 In the words of Henry Fayol, “Every thing that goes to
increase the importance of subordinate’s role is
decentralization, everything that goes to reduce it is
centralization”.
 Under Centralization, the executive reserves the
authority with himself instead of delegating it to
his subordinates and ultimately reserves authority.
But where he is forced to delegate, he may do so
by not delegating adequate authority so that the
subordinates must approach him to arrive at the
appropriate decision.
 According to Allen, “Centralization is the
systematic and consistent reservation of authority
at central points within an organization”.
 Centralization, according to Fayol, “It is that
organization where the role of the subordinates is
reduced”.
i. Almost all the authority to take decision is
kept reserved at top level.
ii. The role of the subordinates gets no
importance and their main job is to
implement the decisions.
iii. Process of delegation of authority is issued
to minimum.
iv. Distance between the place of work and the
place where decision are taken.
 Independent Set-up: Under a centralized set-up the
superiors remain free because of the little role of the
subordinates, thereby, that they do not depend upon their
subordinates.
 Less Skilled Subordinates: An enterprise running on the
lines of centralization need not have highly skilled
subordinates. It results in the economy of wages and
salaries.
 Personal leadership— Centralization encourages and
permit personal leadership. The introduction of personal
leadership facilitates quick action, aggressive marketing
and attainment of pin-pointed objective or purpose,
 Better co-ordination — Centralization facilitate better co-
ordination among various operations. Direct control and
supervision are facilitated which results in less likelihood
of conflict of authority and duplication of work.
 Specialization. Specialization of work as well as process and
handling of the work by the staff who has specialized in the work
he is handling are a few of the meaningful advantages of
specialization.
 Reduced cost—The standardized procedure and method helps in
considerably reduction of office cost. Office cost is reduced as it
does not emphasizes on more specialists, and more
departmental machines and equipment.
 No duplication of work. Centralized personal leadership,
uniformity of activities and specialization leave no scope for
duplication of work in the office. Thus extra labor and extra cost
involved in duplication is avoided and economy is ensured.
 Quick decision. For taking advantage of rare opportunities
coming in the way, it is necessary that decision should be quickly
taken lest the opportunity so available may be slipped away.
Centralized office organization helps in such a quick decision.
 Effective control. Uniformity in activities, specialization
and standardization facilitates greater degree or
supervision, effective co-ordination, self and departmental
integration and thus ensure effective control.
 Uniformity of activities. Obviously when centralized, the
activities will be either in the hand of one individual or a
few one but under his (one) direct, control. This will result
into uniformity of activities and thereby ensuring uniform
decision and uniform process.
 Greater flexibility. In case of any emergency arising the
uniformity of activities help in adjusting the activities,
procedure and decisions taken. This adjustment ensures
flexibility the opportunity for which is available in
centralized office organization in greater degree.
 Delay in work— Centralization creates loss of man-
hours and delay in performance of work because of
transmission of records from and to the central
control room. Quick decision is not possible which
also results delay in office work.
 Remote control—Better supervision is not possible as
the executives are under heavy pressure of work.
Slackness in work is developed in the absence of
better control and supervision.
 No Secrecy—Secrecy is not possible in centralized set
up organization because here orders and decisions
flow from one place and are conveyed to all.
 No special attention—In centralization no special
attention is given to special work as all works are
done at one place.
 Excessive Work-load for Top Executives: Since all the
decisions are taken at the level of the superiors, their
workload increase, and consequently solid decisions
cannot be taken.
 Low motivation and commitment: - When employees
have the authority to make decision, naturally they will
be de-motivated at work and their commitment
decreases, their moral will be low.
 Delayed decision: - Top level management will be
overloaded by decision making and decisions cannot
be taken at right time.
 Industrial Disputes: Because of the distance between
the place of work and the place where decisions are
taken, the superiors fail to understand the problems of
the subordinates. It results in industrial disputes.
 Decrease in Initiative: Because of the lack of authority
the subordinates pay no heed to the problems
appearing in their work sphere, and nor do they try to
understand them. Them inevitable kills their
initiative.
 Diversification Impossible: Centralization and
diversification are at variance with each other. It
means that it is impossible to find them both
together.
 Problem of Communication: Under centralization the
managers in the top hierarchy face difficulty in
collecting the information which is so essential for
taking decisions. Incidentally, the information is
available at the lower level and the decisions are
taken at the top level.
 Decentralization is a systematic delegation of authority at all levels
of management and in all of the organization. In a decentralization
concern, authority in retained by the top management for taking
major decisions and framing policies concerning the whole concern.
Rest of the authority may be delegated to the middle level and lower
level of management.
 Decentralization is not the same as delegation. In fact,
decentralization is all extension of delegation. Decentralization
pattern is wider is scope and the authorities are diffused to the
lowest most level of management. Delegation of authority is a
complete process and takes place from one person to another. While
decentralization is complete only when fullest possible delegation
has taken place. For example, the general manager of a company is
responsible for receiving the leave application for the whole of the
concern. The general manager delegates this work to the personnel
manager who is now responsible for receiving the leave applicants.
In this situation delegation of authority has taken place. On the
other hand, on the request of the personnel manager, if the general
manager delegates this power to all the departmental heads at all
level, in this situation decentralization has taken place.
 In the words of Satya Saran Chatterjee
"decentralization means pushing down of
authority and power of decision making to lower
levels of organization".
 Henry Fayol define that “everything that goes to
increase the importance of the subordinate’s role
is decentralization” He obviously was referring to
division of authority which certainly is the
essence of decentralization.
 E.F.L Breech has rightly put it as “the pattern of
responsibilities resulting from delegation.”
I. It is an extended from of delegation
II. It gives importance to the role of the
subordinates
III. This is a process applicable to the entire
organization
IV. It reduce the work-load of the managers in the
top hierarchy
V. Under it decisions are taken by those who
implement them
VI. Under it along with authority, responsibility is
also transferred.
 Diversification of activities: Decentralization
reduces the burden of the chief executives with
making routine decisions. They can easily devote
the time available for important activities such as
diversification of products, raising necessary
finance, obtaining licenses and starting new lines
of production and solving crucial problems of the
business concern, while less important and
routine may be left to the middle and supervisory
levels.
 Improvement of morale: Decentralization helps
improvement of managerial ability which leads to
an increase in their morale and this results in a
higher productivity.
 Satisfaction of human needs: Decentralization is an important
tool for satisfying human needs of power, independence, status
and prestige. This satisfaction helps in building a cadre of
satisfied managers, who feel their responsibility towards
company’s work.
 Quick and wise decision possible: Since decision-making
authority is as near as possible to the place where action takes
place, those having this authority can make reasonably accurate,
wiser and timely decisions because they are well aware of the
realities of the situation. Decentralization also minimizes the
delay in communicating information.
 Development of the Managerial Personnel: As the business grows
in size, it requires the services of a large number of managers
and here decentralization provides a training ground for the
would-be managers. The managers learn by experience within
the organization concerned.
 Reduces the Burden of Top Executives: It frees the top managers
from the burden of taking too many operating decisions. This
enables specialization and also permits the top managers to think
for the future and make plans accordingly.
 Facilitates Diversification: Diversification of products or markets is
possible only by departmentalization. Without decentralization,
departmentalization is meaningless and practically impossible.
 Develops the Quality of Managers: The executives will get training
and also opportunities to develop their talents.
 Flexibility: It permits the enterprise to move quickly and there will
be more flexibility in meeting competition because prompt and
spot decisions are possible.
 Increase Initiative: Because of the lack of adequate authority the
subordinates do not pay attention to the problems confronting
them in their work area and nor do they try to understand them.
Under decentralization they have sufficient time to understand the
problem and find the solution.
 Improves Motivation: Decentralization provides
more chances for the executives to exercise
initiative without any undue interference from the
top executive. This improves the morale of the
employees and motivate them for peak
performance.
 Secures Better Co-ordination: As self-sufficient
departments are established with necessary
service functions, all the activities are
coordinated at the departmental level.
 Ensures Effective Control: It is comparatively easy
to measure the performance of the operations at
the department level. This will lead to effective
control.
 Lack of Uniformity: There shall not be uniformity in
policies and actions, since each manager will form his
own genius in designing them.
 Unsuitable for Small Firms: Departmentalization is
completely unsuitable for small firms as it involves
high operating costs.
 Reliance on the Manager: Decentralized organization
has to place undue reliance on the efficiency of the
divisional managers. If they do not have enough skill
or competence to take appropriate decisions, the
enterprise has to incur heavy losses due to their
faulty decisions.
 Self Centered Attitude: Each department will tend to
be self centered ignoring the broader interests of
other departments and that of the entire firm.
 More cost— Decentralization is costly because it
encourages duplication of functions and equipments. As it
is costly, it cannot be adopted by small organizations.
 No specialization — Specialization suffers in
decentralization because everyone becomes jack-of-all-
trades but master of none. So specialization is affected.
 Problem of Co-Ordination: Decentralization of authority
creates problems of co-ordination as authority lies
dispersed widely throughout the organization.
 Require Qualified Personnel: Decentralization becomes
useless when there are no qualified and competent
personnel.
 Lack of control: The Superiors become slack after giving
authority to other people. Their careleness weakness the
control in the entire organization and everybody tends to
be autocratic.
 Size of the Organization – size of the organization, is a
major factor influencing the decentralization. The size of
the organization depends on terms of sales number, plans,
number of employees no. of machines etc. The size of the
organization depends on the largeness of these factors and
the requirement of decentralization accordingly.
 Managerial Outlook: The extend of decentralization
depends primarily on the outlook of the managers. If the
managers happen to be autocratic by nature, they will
prefer to keep most of their authority in their own hands. In
that case, there will be a little decentralization. On the
contrary, if they have democratic outlook, the extend of
decentralization will be more.
 Strategy and organization environment– strategy and
organization environment influences market, technological
environment, competition. It is the basis of determining
decentralization of authority and centralization of authority.
 History of organization: An organization which expands
from within has more centralization. For e.g. Henry Ford
made most of the decisions for Ford Motors. However, an
organization which expands with the help of business
combinations has more decentralization.
 Availability of Competent Subordinates: If more efficient
subordinates are available, then there will be more
decentralization. However, if there is a shortage of efficient
managers then there will be more centralization.
 Control Systems: If there is a good control system in the
organization, then there will be more decentralization. This
is because authority cannot be decentralized and delegated
without proper control techniques.
 Uniformity of Policy: When there is no need for uniformity
of policy, high degree of decentralization is possible. On
the other hand, if the company desires to obtain uniform
policy, centralized authority is the easiest road to attain it.
 Business Dynamics: The dynamic character also
vitally affects the degree to which authority may
be decentralized. If the business is growing fast,
decentralization becomes necessary. However,
this factor also depends upon the availability of
competent managers.
 Riskiness of Decisions: If the number of decisions
involving risk is more, there will be a less
tendancy towards decentralization on the part of
top managers. If , However, on the contrary most
of the decisions are without any risk the extend
of decentralization will be more.
Basis for Comparison Centralization Decentralization

The retention of
The dissemination of
powers and authority
authority,
with respect to
responsibility and
planning and
Meaning accountability to the
decisions, with the
various management
top management, is
levels, is known as
known as
Decentralization.
Centralization.
Systematic and
consistent Systematic dispersal
Involves
reservation of of authority.
authority.
Communication Flow Vertical Open and Free
Basis for
Centralization Decentralization
Comparison

Decision Making Slow Comparatively faster

Proper coordination Sharing of burden

Advantage
and Leadership and responsibility
Multiple persons
Power of decision Lies with the top
have the power of
making management.
decision making.
Inadequate control Considerable control
Reasons
over the organization over the organization

Small sized Large sized

Best suited for
organization organization
Basis for Comparison Delegation Decentralization

Decentralization is the
Delegation means final outcome
handing over an achieved, when the
authority from one delegation of authority
Meaning
person of high level to is performed
the person of low systematically and
level. repeatedly to the
lowest level.

Technique of Philosophy of
What it is?
management management.

Superiors are Department heads are

accountable for the accountable for the
Accountability
acts done by acts of the concerned
subordinates. department.
Basis for Comparison Delegation Decentralization

No, it is an optional
Yes, for all organization
philosophy which may
Requirement delegation of authority
or may not be adopted
is very necessary.
by the organization.

Subordinates do not A substantial amount

Liberty of Work
have full liberty. of freedom is there.

The overall control

vests with top
The ultimate control is management and
Control
the hands of superior. delegates authority for
day to day control to
departmental heads.
Creates superior- A step towards creation
Relationship subordinate of semi-autonomous
relationship. units.