Centralization and Decentralization

Centralization is the degree to which decision-making is concentrated at a single person in the organizations. In the organizations with a high level of centralization, top managers make all important decisions and the subordinates work for implementing those decisions.

Decentralization

Centralization is the degree to which the involvement in decision-making is dispersed throughout the organizations. Decentralization increases the employee empowerment which is the decision-making authority (power) of employees.

Factors and situations that Influence the Degree of Centralization

More Centralization is advisable when:

Lower-level managers are not as talented and competent at making decisions as upper-level managers.

Lower-level managers are not willing to be part of decision making

Organization is at a critical phase

Effective implementation of company strategies depends on managers’ command

More Decentralization is advisable when:

Lower-level managers are talented and knowledgeable at making decisions.

Lower-level managers are willing to be part of decision making

Company is geographically spread.

Effective implementation of the company requires the involvement of lower-level managers also.