Factors affecting centralisation anddecentralisation

Presented by:-Himanshu sharma

Content:-• Meaning of centralisation.• Advantages of centralisation.• Meaning of decentralisation.• Advantages of decentralisation.• Factors affecting centralisation and

decentralisation.

Centralisation• “Centralization is the systematic

and consistent reservation of authority at central points within an organization”.

-Louis A. Allen• Control and decision-making reside

at the top level of management

advantages• Reduced cost—The standardised procedure and

method helps in considerably reduction of office cost. Office cost is reduced as it does not emphasizes on more specialists, and more departmental machines and equipment.

• Uniformity in action — Uniformity in action is established throughout the organisation because of central administrative control. The same executive supervises the work and same type of office equipments are used which ensure uniform performance of activities.

• Personal leadership—Centralisation encourages and permit personal leadership. The introduction of personal leadership facilitates quick action, aggressive marketing and attainment of pin-pointed objective or purpose,

Continue.....• Flexibility — Centralisation permits

flexibility and adaptability of the organisation to the changed circumstances.

• Better co-ordination — Centralisation facilitate better co ordination among various operations. Direct control and supervision are facilitated which results in less likelihood of conflict of authority and duplication of work.

decentralisation• “ DECENTRALISATION REFERS TO THE

SYSTEMATIC EFFECT TO DELEGATE TO THE LOWEST LEVELS ALL AUTHORITY EXCEPT THAT WHICH CAN ONLY BE EXERCISED AT CENTRAL POINT “.

-LOUIS A. ALLEN

• DECENTRALISATION REFERS TO EVERYTHING THAT GOES TO INCREASE THE IMPORTANCE OF SUBORDINATES.IN THE OTHER WORDS IT MEANS THE DISPERSION OF AUTHORITY OVER THE ORGANISATION.

Advantages • Reduces the burden on top executives:-

decentralisation relieves the top executives of the burden of performing various functions. Centralisation of authority puts the whole responsibility on the shoulders of an executive and his immediate group. This reduces the time at the disposal of top executives who should concentrate on other important managerial functions.

• Facilitates diversification:-Under decentralization, the diversification of products, activities and markets etc., is facilitated. A centralised enterprise with the concentration of authority at the top will find it difficult and complex to diversify its activities and start the additional lines of manufacture or distribution.

• Executive Development:-When the authority is decentralised, executives in the organisation will get the opportunity to develop their talents by taking initiative which will also make them ready for managerial positions. The growth of the company greatly depends on the talented executives.

Continue.....• Better control and supervision:-

Decentralisation ensures better control and supervision as the subordinates at the lowest levels will have the authority to make independent decisions. As a result they have thorough knowledge of every assignment under their control and are in a position to make amendments and take corrective action.

• Quick Decision-Making:-Decentralisation brings decision making process closer to the scene of action. This leads to quicker decision-making of lower level since decisions do not have to be referred up through the hierarchy.

Factors affecting centralisation and decentralisation

• History and Nature of the Organisation:- Centralisation or decentralization of authority depends on the manner, in which the organisation has built up over time i.e., history of the organisation. As organisation that has been primarily built by an individual’s efforts tends to have a highly centralized structure. Organizations that have grown through a number of mergers, amalgamations and consolidations tend to stay decentralized.

• Size of the Organisation:- The size of the organisation is another factor that effects decentralization. In a large organisation, numerous decisions have to be taken at different places. Therefore, it becomes difficult to coordinate the functions of different departments. To avoid slow decision-making and to bring down the costs associated with managing a large organisation, authority should be decentralized. Decentralisation enables the organisation to operate as a group of small independent units thus reducing the workload of managers, reducing the amount of paperwork and improving the quality of decisions. 

Continue.....• Availability of Competent Managers:- The degree of

decentralization in an organisation is influenced by the availability of competent managers. Decentralisation of authority may not be possible if the managers of the organisation are not talented enough, and if they can’t handle the problems of decentralized units.

• Time frame of Decisions:- In order to survive in a highly competitive environment, every organisation has to capitalize on the available opportunities. In a decentralized organisation, the authority to make decisions lies with the head of that particular unit. Therefore, decisions can be made faster. The decisions are made closer to the scene of action, and are therefore, timely and accurate.

Continue.....• The Importance of a Decision:- The

importance of a decision to an organisation is also a crucial factor that influences the decentralization of authority. Generally, decisions, which involve high risks and costs, are made by the top management, while the decisions involving routine and low-risk activities are delegated to the subordinates.

• Environmental Influence:- Besides the factors mentioned above, all of which are internal to the organisation, there are environmental factors also that affect the degree of decentralization. Government regulation of private business is the most important factor, which affects the extent of decentralization.