Centralisation

By Ashutosh kr. Singh ECE

CENTRALISATION

Centralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to Allen, “Centralization” is the systematic and consistent reservation of authority at central points in the organization. The implication of centralization can be :-

·        Reservation of decision making power at top level.

·        Reservation of operating authority with the middle level managers.

·        Reservation of operation at lower level at the directions of the top level.

Under centralization, the important and key decisions are taken by the top management and the other levels are into implementations as per the directions of top level. For example, in a business concern, the father & son being the owners decide about the important matters and all the rest of functions like product, finance, marketing, personnel, are carried out by the department heads and they have to act as per instruction and orders of the two people. Therefore in this case, decision making power remain in the hands of father & son.

Definitions of centralisation:

Following are the main definitions of centralisations:

·        According to Louis A .Allen. “centralisation is the systematic and consistent reservation of authority at central points in the organisation.”

·        According to Henry Fayol, “Everything that goes to increase the important of the subordinates’ role is decentralisation and everything which goes to reduce it is centralisation.”

Characteristics of centralisation:

Following are the characteristics of centralisation:

·        Almost all the authority to take decision is kept reserved at the top level.

·        The role of the subordinates gets no importance and their main job is to implement the decisions.

·        Process of delegation of authority is used to the minimum.

·        Distance between the place of work and the place where decision are taken.

Advantage or importance of Centralisation

·         Facility for personnel leadership.There is absolutely no doubt that the centralized Office organization helps in establishing a personnel leadership which may even be able to convert a losing business house into a profitable one because of strong, efficient, purposeful and non controversial central leadership.

·         Equitable distribution of work.  In order to group together and economies the working as well as cost the grouping of two and more departments into one also placing the same under one control goes a long way in equitably distributing in workload not only between different departments but between individual worker as well. This brings economy and speed.

·         Uniformity of activities. Obviously when centralized, the activities will be either in the hand of one individual or a few one but under his (one) direct, control. This will result into uniformity of activities and thereby ensuring uniform decision and uniform process.

·         Specialization. Specialization of work as well as process and handling of the work by the staff who has specialized in the work he is handling are a few of the meaningful advantages of specialization.

·         Economy.  The uniformity of activities and specialization of work lead to economic operation and best utilization of the staff services. This brings efficiency and smoothness as well. All these bring economy.

·         No duplication of work. Centralized personal leadership, uniformity of activities and specialization leave no scope for duplication of work in the office. Thus extra labor and extra cost involved in duplication is avoided and economy is ensured.

·         Quick decision. For taking advantage of rare opportunities coming in the way, it is necessary that decision should be quickly taken lest the opportunity so available may be slipped away. Centralized office organization helps in such a quick decision.

·         Greater flexibility.  In case of any emergency arising the uniformity of activities help in adjusting the activities, procedure and decisions taken. This adjustment ensures flexibility the opportunity for which is available in centralized office organization in greater degree.

·         Standardization and training facilities enhanced. Centralized office organization helps in standardizing the work and thereby helps in extending the training facilities to everyone and every work in the organization which needs specialization, standardization and attention The new staff member can easily pick up the work and can easily be accommodated and adjusted in such a set-up.

·         Effective control. Uniformity in activities, specialization and standardization facilitates greater degree or supervision, effective co-ordination, self and departmental integration and thus ensure effective control.

·         Fixing of responsibility is facilitated. It is possible in decentralized system to locate the fault and detect the deviations and thus is able to pinpoint and take effective measures to improve by knowing and then fixing the responsibility and thereby improving the      working and efficiency.

Disadvantages of centralization:

However, a centralized set-up suffers from the following disadvantages:

·         Delay in work. Quick decision is possible but only at the top level, since decision is take only by the top, it is not possible to take quick decision whenever the top is neither available nor is in a mood to take one. This results in delaying the work since it is the top who is to take decision and none else.

·         Bureaucracy. Bureaucracy leads to red tapism. A centralized set-up breads red-tapism which does not only delay the work but also sometimes helps in the raining of eye brows because bureaucracy always leads to discrimination.

·         Distinctive to subordinates. Subordinate in such a set up only is required to implement   whatever it is asked to carry out. No independent decision making authority. A mechanical working always creates mental reservation. The subordinate does not take imitative nor is he allowed to do so. Thus there remains no charm in either the work or the organization as he knows fully well that no upper ladder is there for him as he is not allowed to take any initiative.

·         No loyalty. Since the initiative is not there, charm is not there. Zeal is absent. No involvement is there. Only the implementation of job is there. This means “work like a machine as ordered.” Such a psychology always never works. Thus neither the work for the organization is treated as own one, obviously from a servant loyalty can be expected only when he is allowed to think that he is very much the part of the department and the organization. This is always missing. This brings lack of loyalty among the working force.

·         Lack of secrecy. Secrecy in a centralized set up cannot be maintained as the orders and decisions flow from one place and conveyed to all. Moreover, all work at a place, under one roof, one control and one office department. Thus secrecy even if tried cannot be maintained as effectively as might be required.

DECENTRALISATION

Decentralisation of authority is another concept closely related to centralisation. The delegation of authority by an individual manager is closely related to organization’s Decentralisation of authority.

Decentralisation of authority means conscious/systematic effort to bring dispersal (spreading) of decision making power to the lower levels of the Organisation. In decentralisation, only broad powers will be reserved at the top level. Such powers include power to plan, organise, direct and control and maximum powers will delegated to the authority at the lower level.

Decentralisation is just opposite to centralisation. Under centralisation, authority is mostly concentrated at the top level management. Centralisation and decentralisation are mutually dependent. In a large Organisation, the process of centralisation and decentralisation co-exist and reinforce each other.

Definitions of Decentralisation

·        According to Henry Fayol, "Everything that goes to increase the importance of the subordinate’s role is decentralisation, everything that goes to reduce it is centralisation."

·        According to Louis Allen,"decentralisation refers to the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at central point."

This definition makes it clear that even in decentralisation, delegation to the lowest levels is not complete as the basic functions in the management process are centralized.

Advantages / Importance of Decentralization

·        Decentralisation helps to improve the quality of decisions/decision-making at the top level management : Decentralisation of authority among other executives at all levels in the Organisation relieves the top executive of the excessive burden saving his valuable time, which he can devote to more important and long-term problems. This is bound to improve the quality of his decisions regarding such problems.

·        Decentralisation facilitates diversification of activities : It is a matter of common experience that an Organisation with departmentation on the basis of products facilitates diversification of products or market even when the authority is centralized. Decentralisation takes this process a step further. Managers of semi-autonomous product divisions are able to utilise their skills and experienced judgment. This has a bearing on their products and the market. The enterprise also attains maximum possible growth. Decentralisation is beneficial when new product lines or new activities are introduced in an Organisation. Such policy creates self sufficient units under overall co-ordination of top level management.

·        Decentralisation encourages development of managerial personnel : Most companies find lack of managerial talent as a limiting factor in their growth. A company cannot expand effectively beyond the scope and abilities of its managerial personnel. Capable managers, however, can be developed only by giving managerial jobs to suitable persons and delegating them the authority to make important decisions. Such wide exposure gives them opportunity to grow and to have self development for higher positions. The more talented and capable persons will learn and improve and qualify themselves for higher managerial positions. Only a decentralized Organisation can offer such opportunities to future managers without involving additional expenditure. A decentralized Organisation also allows its managers adequate freedom to try new ideas, methods or techniques. In brief, decentralisation creates a team of competent managers at the disposal of the company.

·        Decentralisation improves motivation : Research conducted by social scientists has proved that the Organisation structure itself exercises some influence on the motivation of the people working within it. An Organisation structure which facilitates delegation, communication and participation also provides greater motivation to its managers for higher productivity. Decentralized Organisation structure is most favorable for raising the morale and motivation of subordinates which is visible through better work performance.

·        Decentralisation makes decision-making quicker and better : Since decisions do not have to be referred up through the hierarchy, quicker and better decisions at lower levels can be taken. Divisional heads are motivated to make such decisions that will create the maximum profit because they are held responsible for the effect of their decisions on profits. Thus decentralisation facilitates quick and result-oriented decisions by concerned persons.

·        Decentralisation provides opportunity to learn by doing : Decentralisation provides a positive climate where there is freedom to make decisions, freedom to use judgment and freedom to act. It gives practical training to middle level managers and facilitates management development at the enterprise level.

Limitations of Decentralization 

·        Decentralisation may lead to the problem of co-ordination at the level of an enterprise as the decision-making authority is not concentrated.

·        Decentralisation may lead to inconsistencies (i.e. absence of uniformity) at the Organisation level. For example, uniform policies or procedures may not be followed for the same type of work in different divisions.

·        Decentralisation is costly as it raises administrative expenses on account of requirement of trained personnel to accept authority at lower levels. Even the services of such highly paid manpower may not be utilised fully, particularly in small organisations.

·        Introduction of decentralisation may be difficult or may not be practicable in small concerns where product lines are not broad enough for the creation of autonomous units for administrative purposes.

·        Decentralisation creates special problems particularly when the enterprise is facing number of uncertainties or emergency situations. The decision-making process gets delayed and even correct decisions as per the changing situations may not be possible.