Centralization and

Decentralization

Prepared by
Pankaj Dobariya
Email: pk_dobariya@yahoo.com
Content

 Definition
 Types of (De) Centralization
 Determinants of decentralization
 Benefits of (De) Centralization
 Limitation of (De) Centralization
(De)Centralization

 According to Louis Allen, “Centralization is the

systematic and consistent reservation of authority at
central points within an organization.”
 “Decentralization applies to the systematic
delegation of authority in an organization.”
 According to Henry Fayol ”Every thing that goes to
increase the importance of subordinate’s role is
decentralization, every thing which goes to reduce it
is centralization”.
Chart of (De)
(De)Centralized structure
Types of centralization

 Centralization of performance

 Departmental centralization

 Centralization as an aspect of management

Types of decentralization

 Physical and geographical location

 Functional decentralization
Determinants of decentralization

 Size of organization
 The history of the company – how have
things been done in the past
 The nature of the decisions – riskier
decisions tend to be centralized
 Availability of managers – authority requires,
quality of managers
Cont..

 Abilities of lower level managers – will they

be able to handle the challenges
 The general economic situation – recession –
more centralization
 Control techniques
Why do companies Centralize?

 For personal leadership

 For integration of efforts
 To handle emergencies
 Scarcity of managerial manpower
 For easy communication and control
 To reduce wastage of efforts
Why do companies Decentralize?

 To reduce work burden of top management

 To facilitate growth and diversification
 Sometimes, subordinates or lower levels may
have more expertise
 Stimulus for motivation and also helps
develop lower level personnel
 Promotes development of general mangers
Limitation of centralized structure

 Not suitable
– for large organizations
– for them who produce multiple products
– Operating in different geographical location
 Increase burden on the top executive
 Neglect of human element
Limitation of decentralization

 Not followed properly – inadequate planning

and control – create chaos
 Increase cost – facilities, training
 Require qualified manager – otherwise fail
 Require high degree of self-motivation and
self-control
 May affect external forces – national labor
unions, tax policies
How to make decentralization effective

 Centralized top policy and control

 Appreciation of concept of decentralization

 Development of managers

 Competition among units

(De) Centralization and
Woodward’s study
 Routine technologies/mass production –
centralized
 Craft technologies – decentralized – production
employees obtain decision authority because
of expertise
 Process – employees with technical training
acquire moderate decision making authority
because their technical knowledge is important
to do the job
THANK YOU…