factors affecting centralisation and decentralisation.ppt
• Meaning of centralisation.
• Advantages of centralisation.
• Meaning of decentralisation.
• Advantages of decentralisation.
• Factors affecting centralisation and decentralisation.
• “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
• 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
• 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,
• Flexibility — Centralisation permits
flexibility and adaptability of the
organisation to the changed
• Better co-ordination — Centralisation
facilitate better coordination among
various operations. Direct control and
supervision are facilitated which results in
less likelihood of conflict of authority and
duplication of work.
• “ 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
• 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.
• 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.
• 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
• 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.
• 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
• 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.