centralization and decentralization

Centralization and Decentralization

Prepared byPankaj DobariyaPankaj DobariyaEmail: pk_dobariya@yahoo.comEmail: pk_dobariya@yahoo.com

Content

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

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”.

(De)

Chart of (De)Centralized structure (De)

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 organizationThe history of the company – how have

things been done in the pastThe nature of the decisions – riskier

decisions tend to be centralizedAvailability 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 leadershipFor integration of effortsTo handle emergenciesScarcity of managerial manpowerFor easy communication and controlTo reduce wastage of efforts

Why do companies Decentralize?

To reduce work burden of top management To facilitate growth and diversificationSometimes, subordinates or lower levels

may have more expertiseStimulus for motivation and also helps

develop lower level personnelPromotes 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 executiveNeglect of human element

Limitation of decentralization

Not followed properly – inadequate planning and control – create chaos

Increase cost – facilities, trainingRequire qualified manager – otherwise failRequire high degree of self-motivation and

self-controlMay 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

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