Difference between Centralization and Decentralization

The concept of organizational centralization and decentralization is closely related to the concept of span of management. The degree of centralization or decentralization effects the span of management and therefore, influences management.

Decentralization may be viewed as an extension of delegation. It is the situation which exists as a result of systematic delegation of authority throughout the organization. Thus, centralization and decentralization are two opposite situations. There are some misunderstanding about decentralization, such as decentralization is a type of organization and it is equal to physical dispersion. But to state clearly, decentralization is not a type of organization and is is distinct from physical dispersion. Further, decentralization to the complete extent,i.e., delegation of entire authority to the lowest possible extent is not practicable and viable.

Centralization

Centralization

It is the systematic and consistent reservation of authority at the central point within the organization. If a manager reserves work, he has to reserve the authority also. In some cases,managers delegate work without delegating authority necessary to carry out the work. In such cases the decisions are taken by those people who do not actually perform the work.

Advantages

  • Facilitates personal supervision.
  • Provides personal leadership.
  • Promote integration and coordination.
  • Promotes uniform action to handles emergent situation.

Disadvantages: 

  • Delay in communication.
  • Delay in decision-making.
  • Fail to pay proper alternative on policy issues.
  • Under utilization of organizational human resources.
  • Employee dissatisfaction.

Decentralization

It refers to the systematic effort to delegate to the lowest level of all authority. Except that which can only be exercised at central point. It proceeds at different levels and for different functions within the same company. It generally can be accomplished to a certain extent in a functional type of organization structure.

Advantages: 

  • Effective communication.
  • Reduce real lapism.
  • Fast decision-making.
  • Enhance employee job satisfaction.
  • Competitive advantage.

Disadvantage:

  • Increase in complexity of coordination.
  • Superiors do not have complete control over subordinates.
  • Constrained by inadequate planning and control techniques.
  • Difficulty of having uniform policy.

Difference between Centralization and Decentralization in Tabular Form

BASIS FOR COMPARISON CENTRALIZATION DECENTRALIZATION
Meaning The retention of powers and authority with respect to planning and decisions, with the top management, is known as Centralization. The dissemination of authority, responsibility and accountability to the various management levels, is known as Decentralization.
Involves Systematic and consistent reservation of authority. Systematic dispersal of authority.
Communication Flow Vertical Open and Free
Decision Making Slow Comparatively faster
Advantage Proper coordination and Leadership Sharing of burden and responsibility
Power of decision making Lies with the top management. Multiple persons have the power of decision making.
Reasons Inadequate control over the organization Considerable control over the organization
Best suited for Small sized organization Large sized organization