Centralization and Decentralization

Centralization and Decentralization are the two types of structures, that can be found in
the organization, government, management and even in purchasing. Centralization of authority
means the power of planning and decision making are exclusively in the hands of top
management. It alludes to the concentration of all the powers at the apex level.

On the other hand, Decentralization refers to the dissemination of powers by the top

management to the middle or low-level management. It is the delegation of authority, at all the
levels of management.

Definition of Centralization
‘’A pivot location or group of managerial personnel for the planning and decision-
making or taking activities of the organization is known as Centralization’’. In this type of
organization, all the important rights and powers are in the hands of the top level management.

Definition of Decentralization
‘’The assignment of authorities and responsibilities by the top level management to the
middle or low-level management is known as Decentralization’’. It is the perfect opposite of
centralization, in which the decision-making powers are delegated to the departmental,
divisional, unit or center level managers, organization-wide. Decentralization can also be said as
an addition to Delegation of authority.

BASIS FOR CENTRALIZATION DECENTRALIZATION

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

Involves Systematic and consistent Systematic dispersal of authority.

reservation of authority

Communication Vertical Open and Free

Flow

Decision Making Slow Comparatively faster

Advantage Proper coordination and Sharing of burden and responsibility

 Leadership

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

Implemented Inadequate control over the Considerable control over the

when organization organization

Best suited for Small sized organization Large sized organization

Key Differences Between Centralization and Decentralization

The points given below are noteworthy, so far as the difference between centralization and
decentralization is concerned:

1. The unification of powers and authorities, in the hands of high-level management, is

known as Centralization. Decentralization means dispersal of powers and authorities by
the top level to the functional level management.
2. Centralization is the systematic and consistent concentration of authority at central points.
Unlike, decentralization is the systematic delegation of authority in an organization.
3. Centralization is best for a small sized organization, but the large sized organization
should practice decentralization.
4. Formal communication exists in the centralized organization. Conversely, in
decentralization, communication stretches in all directions.
5. In centralization due to the concentration of powers in the hands of a single person, the
decision takes time. On the contrary, decentralization proves better regarding decision
making as the decisions are taken much closer to the actions.
6. There are full leadership and coordination in Centralization. Decentralization shares the
burden of the top level managers.
7. When the organization has inadequate control over the management, then centralization
is implemented, whereas when the organization has full control over its management,
decentralization is implemented.