Concentration of decision-making authority in the hands of a few at the top level is known as ‘Centralization’. In decentralization, there is dispersal of decision-making authority at different levels of the organization structure.

Decentralization

Concentration of decision-making authority in the hands of a few at the top level is known as ‘Centralization’. In decentralization, there is dispersal of decision-making authority at different levels of the organization structure. Subordinates have a greater role to play under decentralization. Delegation of authority is essential for decentralization. But delegation takes place when a superior transfers his authority to his immediate subordinate. Decentralization takes place when the top management favors the dispersal of decision-making authority in all the departments and divisions of the enterprise.

Factors Determining the Degree of Decentralization:

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1.     Attitude of Top Management: If the top management wants all the decision-making authority to be confined to itself and to a few key executives, it may prefer centralization. On the other hand, if the top management wants to have only overall control over the organization and prefers decision-making authority to be dispersed at different levels of the organization, it may prefer the idea of decentralization.

 

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2.     Size of the Enterprise/Scale of Operations: If the size of the concern or the scale of its operations is small, centralization can prove to be effective. On the other hand, if there are a number of operations to be performed through many departments or divisions, decentralization can be ideal.

3.     Nature of Functions: In a manufacturing concern, production and marketing are the basic functions. Such basic functions may be decentralized for better results. Functions such as personnel and finance, meant to facilitate the performance of the basic functions, may be centralized to derive greater efficiency.

4.     Extent of Diversification: If the business enterprise is producing and marketing different types of products, decentralization will be more beneficial.

5.     Availability of capable managers: The decision on decentralization is very much influenced by the availability of efficient managers. In fact, decentralization will be successful only if the top management is able to find capable managers to effectively manage the different departments or divisions of the enterprise.