CENTRALIZATION AND DECENTRALIZATION

Centralization is said to be a process where the concentration of decision making is in a few hands. All the
important decision and actions at the lower level, all subjects and actions at the lower level are subject to the
approval of top management. According to Allen, “Centralization” is the systematic and consistent reservation of
authority at central points in the organization. The implication of centralization can be :-

1. Reservation of decision making power at top level.

2. Reservation of operating authority with the middle level managers.
3. Reservation of operation at lower level at the directions of the top level.

Under centralization, the important and key decisions are taken by the top management and the other levels are into
implementations as per the directions of top level. For example, in a business concern, the father & son being the
owners decide about the important matters and all the rest of functions like product, finance, marketing, personnel,
are carried out by the department heads and they have to act as per instruction and orders of the two people.
Therefore in this case, decision making power remain in the hands of father & son.

On the other hand, 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.

The various forms of decentralization place different emphases on the above three factors.
Deconcentration
The primary objective may beimproving the production efficiency of the administrationwith an improvement in the
impact of the services delivered as a second priority. This may beachieved by introducing administrative and
cultural changes within the existing unitary structures, shifting responsibility, decision-making authority and resources
for front-lineoperations only to the managers of local units. Public delivery and public financing coincidewithin a single
administration. Central government personnel and procurement policies apply.In these cases decentralization takes
the form of  deconcentration.
Deconcentration assigns specific functions and tasks performed by the staff of theheadquarters of central
administrations to staff posted in peripheral locations within thenational territory. Staff, equipment, vehicles, and
budgetary resources are transferred to unitssuch as regional and district offices. The managers of these units are
given authority for autonomous decision making regarding the operations , which were previously taken
atheadquarters, or needed clearance from headquarters.

Delegation
Similar objectives regarding production and allocative efficiency can also be achieved byseparating the production or
delivery from the financing  of a specific public service,introducing a modification of the existing structure of the
public administration.Responsibility and resources for implementing specific tasks and delivering certain servicesare
transferred to a public agency, a state enterprise, a private enterprise, or an NGO under acontract that may provide
some autonomy in interpreting the tasks assigned under thecontract. In this case, decentralization takes the form of 
delegation. Examples of delegationinclude: a national water supply company that may be entrusted with the
responsibility toplan, construct, and operate water supply schemes (over a certain size) across the country; awater
basin development authority; an agricultural research institute; a strategic grain reserve;a project management unit.
Many delegated agencies are not bound to follow the governmentadministration procedures in personnel and
procurement matters. Delegation can be used byany level of government, and does not apply exclusively to the
delivery of national services.

Devolution
If the primary objective is to improve allocative efficiency (with the improvement of production efficiency as a second
priority), this can be achieved by opening the system to theinfluence of the beneficiaries of the services delivered. The
primary objective requires thatbeneficiaries participate, normally through representatives elected to the local
government, inplanning the delivery of services, and in the evaluation of the services provided. In thesecases,
significant changes in the system of public administration are introduced, anddecentralization takes the form of 
devolution . Local governments are assigned theresponsibility of deciding which services should be provided on a
priority basis and to whom.Representation of, and accountability to, beneficiaries are provided through the
electionmechanism. Public production or delivery and public financing coincide, but the lower levelsof government
normally receive only part of the funding required from the centralgovernment, the balance must be raised from
local tax revenue and cost recovery.

The degree of centralization and decentralization will depend upon the amount of authority delegated to the
lowest level. According to Allen, “Decentralization refers to the systematic effort to delegate to the lowest level of
authority except that which can be controlled and exercised at central points.

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.
There is a saying that “Everything that increasing the role of subordinates is decentralization and that decreases the
role is centralization”. Decentralization is wider in scope and the subordinate’s responsibility increase in this case.
On the other hand, in delegation the managers remain answerable even for the acts of subordinates to their superiors.

DIFFERENCE BETWEEN CENTRALIZATION AND DECENTRALIZATION:

Basis for
Centralization Decentralization
Comparison

The retention of powers and authority

The dissemination of authority, responsibility and
with respect to planning and decisions,
Meaning accountability to the various management levels, is
with the top management, is known as
known as Decentralization.
Centralization.

Systematic and consistent reservation of

Involves Systematic dispersal of authority.
authority.

Communication
Vertical Open and Free
Flow

Decision Making Slow Comparatively faster

Advantage Proper coordination and Leadership Sharing of burden and responsibility

Power of decision
Lies with the top management. Multiple persons have the power of decision making.
making

Reasons Inadequate control over the organization Considerable control over the organization
 Basis for
Centralization Decentralization
Comparison

Best suited for Small sized organization Large sized organization

A centralized government often ends up

overlooking the specific needs of smaller
and local communities. Being distant In a decentralized system, decision makers are often
from the population, decision makers able to target ethnic minorities and smaller
Ethnic diversity
often overlook the importance of communities with their laws and bills. A decentralized
accounting for ethnic diversity and of model can better serve diverse interests.
promoting cultural integration and
equality.
A decentralized system is often believed to enhance
A centralized system does not necessarily
and promote public participation. Yet, this is not
exclude public participation – although it
always the case – for instance, China is a decentralized
Participation is easier for the government to take and
one-party system, in which the communist party
implement decisions without having to
maintains strict control over the population and all
go through public scrutiny.
public decisions.
A centralized government may lead to
local and regional unrest when local
In a decentralized state, social and regional unrest is
communities are unhappy or feel
better handled as decision makers are closer to the
Conflict neglected by the central policies. At the
broad population. Yet, at the same time, a decentralized
resolution same time, a centralized government is
government may have less leverage in dealing and
often in a better position to handle
negotiating with third parties and foreign countries.
negotiations with third parties and other
countries.

Similarities between Centralization and Decentralization

Centralization and decentralization are opposing concepts. In one case, the power is in the hands of few, whereas in
the other authority and functions are distributed among a larger number of players. Despite the various differences
between the two, we can identify some similar aspects:

1. In both cases, the central government maintains a certain degree of control. In fact, in decentralized
countries like China, local authorities are under close supervision of the central government and their
powers are limited;
2. Both centralization and decentralization are not limited to the governance. The two terms can refer to
centralization and decentralization of political entities, administrative bodies, security forces, economic
authorities, and social groups; and
3. Both systems can be effective in promoting economic growth and political stability.

Advantages of Centralization

1. Centralization is convenient regarding coordination with different individuals and units.

2. Probably, the higher management might be extra professional and experienced that may lead to effective
and efficient decision making.
3. Regarding decision-making, the higher management possesses a broad perception as per various situations.
4. It can help avoid the duplication of efforts performed different units across the organization.
5. The leadership that seems strong and efficient is promoted.
1. Reduced cost—The standardised 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.

2. Uniformity in action — Uniformity in action is established throughout the organisation because of central
administrative control. The same executive supervises the work and same type of office equipments are used which
ensure uniform performance of activities.

3. Personal leadership—Centralisation encourages and permit personal leadership. The introduction of personal
leadership facilitates quick action, aggressive marketing and attainment of pin-pointed objective or purpose,

4. Flexibility — Centralisation permits flexibility and adaptability of the organisation to the changed circumstances.
Occasional pressure of extra clerical work is handled with the existing staff.

5. Improved quality of work—Improved quality of work is possible because of standardised procedure, better
supervision and use of improved- machinery.

6. Better co-ordination — Centrlisation facilitate better coordination among various operations. Direct control and
supervision are facilitated which results in less likelihood of conflict of authority and duplication of work.

Advantages of Decentralization

1. The concentration of top managers stays on the major issues.

2. The job duties of lower-level staff are given the opportunity to improve decision-making.
3. The decision making process can become more fast.
4. The lower-level professionals might know the in-depth condition of the problem, which may result in better
decision making regarding the position of the lower-level employees.
5. Similar independent units or departments are merged as a division that allows a convenient measurement of
regular outcomes.

Disadvantages of Decentralisation:

Decentralisation can be extremely beneficial. But it can be dangerous unless it is carefully constructed and
constantly monitored for the good of the company as a whole.

Disadvantages of decentralisation are:

1. Uniform policies not Followed: Under decentralisation, it is not possible* to follow uniform policies and
standardised procedures. Each manager will work and frame policies according to his talent.

2. Problem of Co-Ordination: Decentralisation of authority creates problems of co-ordination as authority lies

dispersed widely throughout the organisation.

3. More Financial Burden: Decentralisation requires the employment of trained personnel to accept authority, it
involves more financial burden and a small enterprise cannot afford to appoint experts in various fields.

4. Require Qualified Personnel: Decentralisation becomes useless when there are no qualified and competent
personnel.

5. Conflict: Decentralisation puts more pressure on divisional heads to realize profits at any cost. Often in meeting
their new profit plans, bring conflicts among managers.
Disadvantages of Centralization

The following are the disadvantages of centralization:

 1. Bureaucratic leadership

Centralized management resembles a dictatorial form of leadership where employees are only expected to deliver
results according to what the top executives assigned them. Employees are unable to contribute to the decision-
making process of the organization, and they are merely implementers of decisions made at the higher level. Even
when the employees face difficulties in implementing some of the decisions, the executives will not understand
because they are only decision-makers and not implementers of the decisions. The result of such actions is a decline
in performance because the employees lack the motivation to implement decisions taken by top-level managers
without the input of lower-level employees.

 2. Remote control

The organization’s executives are under tremendous pressure to formulate decisions for the organization, and they
lack control over the implementation process. The failure of executives to decentralize the decision-making process
adds a lot of work to their desk. The executives suffer from a lack of time to supervise the implementation of the
decisions. It leads to reluctance on the part of employees. Therefore, the executives may end up making too many
decisions that are either poorly implemented or ignored by the employees.

 3. Delays in work

Centralization results in delays in work as records are sent to and from the head office. Employees rely on the
information communicated to them from the top, and there will be a loss in man-hours if there are delays in relaying
the records. It means that the employees will be less productive if they need to wait long periods to get guidance on
their next projects.

 4. Lack of employee loyalty

Employees become loyal to an organization when they are allowed personal initiatives in the work they do. They
can introduce their creativity and suggest ways of performing certain tasks. However, in centralization, there is no
initiative in work because employees perform tasks conceptualized by top executives. It limits their creativity and
loyalty to the organization due to the rigidity of the work.