When firms encounter large-scale difficulties, often the causes are the challenges in the external market forces. The most shared market changes include: repositioning, acquisition, consolidation, integration and centralization and decentralization in principles of management. It most often creates fear, uncertainty, and power struggles. Decentralization does not cause much resistance as it is linked to periods of growth and opportunities centralization too has its pros and cons. Organizations that use a hybrid approach of both centralized and decentralized structure are the most efficient, this is because they address three critical needs: the need for efficiency, innovation, and flexibility. So, what is the difference between centralization and decentralization in management?
What Is Centralization in Management?
Centralization is a management structure where those with a wider outlook that comprises cumulative extensive understanding make the decision at an upper consolidated rank and information about what is essential. In a centralized association, choices made by higher management officials are usually communicated to lower organizational levels that are expected to consent and move forward in a way that is about those decisions.
Centralization is a situation where few hands handle the decision-making process. All key choices, factors, and actions the upper management has to commend them. It is usually a constant reservation of power at the central point of the organization. Centralization increases constituency in the ways and procedures that employees execute their tasks, thus in this way it promotes employee harmony and reduces by a margin the cost of production. It is usually paramount when an organization is facing difficulties or on the verge of failure (Boundless, 2017).
What Is Decentralization in Management?
A decentralized organization, where the decision-making ability does not rely on a dominant individual or group. Some decentralized administrations endow all ranks within the hierarchy with decision power. Decentralization defines the extent in which delegation of power occurs to lower management of an organization. Decision-making is subdivided into subunits of the firms. Decentralization varies from one organization to another, the lower the level of decision making the more decentralized the firm is. This mode of management is efficient where the subdivisions that make the decisions are independent, the cost and profits are independently measured (Business Dictionary, 2017).
Decentralization is not similar to delegation but instead an addition to it, with decentralized power, crucial decisions come from middle-level and supervisory-level bosses. Since there are scarcer hierarchical layers to go through, this form of organization helps to empower adaptableness, speedy responses to minor level problems, and more endowed employees. Nonetheless, making organization-wide alterations that execution is homogenous can become relatively hard in this system (Boundless, 2017). The degree of decentralization determinants are by nature of authority given, how far down from the hierarchy of the firm delegation is, and the reliability.
Advantages and Disadvantages of Centralization in Management
In a centralized structure, the advantages are, the firm can concentrate their resources, handling objectives at a greater level of complexity, maybe when a higher standard of expertise is required. There is a higher level of institutional accountability on a centralized structure because a decision has to go through a central office and be controlled for institutional consistency. There is more flexibility in the ways the core values and ethics of the organization are applied.
Centralized organizations are exceptionally efficient when it comes to business decisions. The owners typically create the missions and visions of the organization and set guidelines for both employees and the managers to follow towards achieving the organization's goals (Vitez, 2017). A centralized organization invests a lot in personal leadership, therefore, there is substantial, productive and focused central leadership. The delegation of work is equal, the performances of activities are in uniform since they are in the hands of limited individuals who are under a single direct control.
On the other hand, centralized management demerits are: delay in work since all the decisions come from the top, in the case of absence or workload these decisions take a long to execute. Subordinates do not have permission to take the initiative, therefore, remain with no charm in either the work or organization, this subsequently leads to lack of loyalty. There is no involvement in the process, just the implementation of the tasks assigned, and finally, the organization requires secrecy since guidelines and decisions flowed from one office and carried on to all, work takes place underneath one roof, one management and one department (MBA KNOWLEDGE BASE, 2016).
Advantages and Disadvantages of Decentralization in Management
In a decentralized organization, the chief executive has lesser burdens as in the example of centralization, the juniors get an opportunity to decide and act autonomously, therefore, develop their skills and meet their limits. Therefore, enables the firm to develop its talents. A diverse environment can implant easily in the organization since more activities can successfully take place because new departments are created for new activities. Organizational tasks are at the divisional level unlike in a centralized setup, employees have morale and enthusiasm since they are autonomous, and they act and decide without limitations.
There is more flexibility, and the authorities are nearby when the tasks are being executed therefore reducing errors companies take to correct those mistakes. Decentralization needs to have a good training program so that everyone is trained appropriately across the board, an excellent communication plan so that everyone is informed when there are changes in processes, procedures, and regulations. Finally, there is a need to have a level of accountability and internal control so that everyone is accountable for how they are operating in administering their tasks.
Decentralization facilitates diversification, which comes from departmentalization unlike in centralized organization. All activities training takes place at department level due to the strength of the units, these sectors strive hard to achieve due to relative measures that are put in place. The managers get training and equipment to make sober decisions, therefore, the organization has quality leadership.
There are certain hitches in the application of decentralization: it upsurges the operational cost that rises while paying the managers and training them, it might lack consistency due to diversification in each department. Since the cost of operating one is exceptionally high, this method cannot be effective for small firms. If by any change the departmental managers fail on their tasks due to lack of skills or negligence the organizations incurs huge losses (Money Matters, 2017). When too much attention is focused on small subdivisions of the firms, the primary objective becomes blurring. Therefore, the business develops unhealthy competition, and the managers begin to compete amongst themselves and can end up doing things that are unethical to look better. Deficiency of experience is a default to the firm, this is because the business depends on it to succeed.
Decentralization and centralization are terms that have played a huge role in our society for quite a long time in history. A fair example is the gradual political and organizational deviations in Europe, this happened during the defeat of the Roman Empire when Europe went through massive centralization and decentralization episodes since they left them without a healthy political culture or military protection by the Roman Empire.
Managers of productive enterprises should comprehend that the restrictions of delay in centralized organizations often are reached while decentralization allows for extension to any reasonable limit. Not only is it significant to deliberate the practical boundaries of centralized representation of the overall organization of an entire industry, but the actual limits to the delay of the distinct departments must also be recognized (Rust, n.d.). Research shows that the firms that hand decentralized gained significantly in the economy. For a large company to grow extensively it needs decentralization, this is because the chief executive officers have limited decisions they can make to keep the business running.
Decentralization management tends to influence the company's productivity directly, while in many centralized ones decisions are not made, since CEO's not have enough time to attend to them, and the managers in those sectors usually have no permission to make those decisions. Production meetings happen less because of the need to make decisions but because they are too constrained to participate (Brunel, 2017). However, it is necessary to note that decentralization cannot work everywhere, it is up to the firm to decide on what mode of governance that will be active in the firms. Most start-ups need a centralized form of government due to the amount of capital invested in the management of decentralized businesses. If the organizations are large and often have multiple products and services to offer, therefore, decentralized mode of governance is the ideal choice.
Boundless, 2017. Characteristics of Organizational Structures. [Online] (Concept Version 12) Available at: https://www.boundless.com/management/textbooks/boundless-management-textbook/organizational-structure-2/defining-organization-23/characteristics-of-organizational-structures-145-4008/ [Accessed 5 May 2017].
Brunel, C., 2017. International Differences in Decentralization and Productivity. In C. Brunel, ed. The National Bureau of Economic Research. 1050 Massachusetts Ave., Cambridge, MA: National Bureau of Economic Research.
Business Dictionary, 2017. Decentralized organization. [Online] Available at: http://www.businessdictionary.com/definition/decentralized-organization.html [Accessed 5 May 2017].
MBA KNOWLEDGE BASE, 2016. The meaning of Centralization and its advantages and disadvantages. [Online] Available at: https://www.mbaknol.com/management-concepts/meaning-of-centralization-and-its-advantages-and-disadvantages/ [Accessed 5 May 2016].
Money Matters, 2017. The Annals of the American Academy of Political and Social Science. [Online] Available at: http://accountlearning.com/advantages-and-disadvantages-of-decentralization/ [Accessed 5 may 2017].
Rust, E.G., n.d. Centralization versus Decentralization in Management. In t.A.A.o.a.S. Science, ed. The Annals of the American Academy of Political and Social Science. 85th ed. , Philadelphia: Sage Publications, pp.100-09.
Vitez, V., 2017. Centralized Vs. Decentralized Organizational Structure. Business Models & Organizational Structure.
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