Explain the concept of Centralization and Decentralization of Authority

There are different implications of the terms centralization and decentralization. In context of management, these terms refer to the presence of the decision-making authority in a particular organization. In order to find out if a particular organization is centralized or decentralized, it is necessary to find the decision-making power. If the power to make the decisions lies with the person at the top of the organization, the organization can be described as a case of centralization. But if the power to take the decisions has been divided among different persons in the organization, it will be a case of decentralization. The role played by the subordinates is also connected with the level of delegation of authority. Hence, if the subordinates have to implement whatever orders have been given to them, it can be described as the centralization of authority. In such a case, all the decisions are taken by the top level management and no authority is available to the subordinates to change or amend these decisions. As compared to this situation, in case of decentralization, the subordinates were more power, and they also have a significant role in the process of decision-making.

CENTRALIZATION
Generally, centralization can be seen in case of small enterprises. The success of small organizations depends on the dynamic manager who is capable of single-handedly dealing with all the issues related with the organization. Such a manager has to take all the decisions themselves and only the implementation of these decisions is entrusted to the subordinates. A direct link is present between the proprietor of the organization and the employees. Such person or snidely looks after all the managerial functions like production, financing and marketing etc. this person has to be consulted for all types of guidance and the decisions of such a person are final.

Generally, it has been seen that centralization proves to be successful in case of small enterprises. This is due to the reason that in such a case, the operations are limited and the proprietor of the organization is able to personally look after all the activities of the organization. This style of management proves to be effective when a need arises to take decisions in an emergency. However, when the business of the organization expands, it becomes difficult to control all the activities and therefore a need arises for decentralization.

Factors Impacting Centralization of Authority:
There are many reasons due to which the management of the organization may centralize the decision-making authority. These include:-

1. Achieving uniformity of action: The uniformity of action may be achieved when the decision-making authority has been centralized. In such a case, the decisions are taken by the top management, and they are implemented at every level of the organization. There can be more than one unit under a single management and therefore it may be desired to have similar policies and procedures. On the other hand, if each unit takes its own decisions independently, it will not be possible to achieve uniformity of action. Therefore, it can be said that centralized decision-making allows the unity of action.

2. Facilitating Integration: There can be a need to integrate all the operations of the enterprise in order to achieve common objectives. Therefore, centralized management facilitates the integration of activities by providing common policies and programs.

3. Promoting Personal Leadership: The growth of the small organizations depends on the strength and capabilities of the managers. Even the big organizations also rely upon the qualities of the managers in their early phases. However, the whole authority lies with the chief executive. In such a case, quick decisions and imaginative action can be taken. The manager can also acquired more skills and experience which in turn promotes their personal leadership.

4. Dealing with emergencies: There are certain business situations where a need arises to take some decisions in an emergency. Sometimes even the existence of a small organization may be in danger if timely action is not taken. In such cases, centralized authority allows quick and timely decisions from short-term and also from long-term perspective.

DECENTRALIZATION
Decentralization means the dispersal of decision-making power at the lower level of management. When the power to make the decisions and formulate the policies is not enjoyed by a single person at the top but such power has been granted to different persons at different levels, it can be described as a case of the centralization of authority. The decisions taken at the lower level need to be more in number, but these decisions should also be important ones. If only insignificant diseases are allowed to be made at the lower level, then it cannot be described as a case of decentralization.

Evaluating the level of decentralization:
Decentralization is not an absolute term. The level of decentralization varies from organization to organization. In this regard, there are four tests that can be used to decide the level of decentralization.

1. Number of decisions: The higher the number of decisions that are made at the lower level of management, the greater is the level of decentralization in the organization.

2. Importance of decisions: If significant decisions are taken by the lower level of management, then the level of decentralization will also be more. On the other hand, if only insignificant decisions are allowed to be made by the low-level management, in such a case, the level of decentralization will also be low.

3. Effect of decisions: If the decisions that affect both functions are allowed to be taken at the lower level of management, then the level of decentralization will be higher. But if only the operational decisions are allowed to be taken by the low-level management, then the level of decentralization will also be low. When the decisions related with financial matters undertaken by the low-level management, then the degree of decentralization will also be higher in the organization.

4. Checking of decisions: When the decisions are subject to the approval by the superiors, then the degree of decentralization will be low. Still it will be low, if the superiors have to be consulted before taking particular decisions. On the other hand, if the subordinates are free to take decisions on their own, the degree of decentralization will be higher in the organization.

Factors resulting in decentralization:
Decentralization is necessitated by the factors mentioned below:-
(i) When it is required that the decisions should be taken quickly and on the spot to take the advantage of a particular situation, then it is required that the power to take decisions should be delegated to the level where it is required.

(ii) When the top-level management of the organization wants to reduce communication work then decentralization has to be undertaken.

(iii) The product or the market of the company may require the centralization of decision-making powers to provide emphasis to the product on the market. The process of decentralization may also be facilitated by the technical changes.

(iv) In case of growth and diversification, decentralization may become necessary to bring the stability in the operations of the organization and also to reduce the burden of top executives of the organization.

Decentralization Is the Extension of Delegation
However, decentralization and dedication are not the same thing. Decentralization is something more than delegation of authority. In case of delegation, the authority is delegated by one individual to the other. But in case of decentralization, the authority is scattered throughout the organization.

Delegation comes to an end when the authority is delegated to another person while decentralization is complete when fullest delegation has been made all the persons in the organization. In case of delegation, the controls still lies with the delegator. On the other hand, in case of decentralization, the controlling powers are delegated by the top management to the lower levels of management.