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Difference between Centralisation and Decentralisation

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  • Last Updated : 19 Oct, 2022
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Centralisation refers to the concentration of authority at the top level of the organisation. It is the systematic and consistent reservation of authority at the central points within an organisation. In a centralised organisation, managers at the lower level have a limited role in decision-making. They just have to execute the orders and decisions of the top level. 

Decentralisation means the dispersal of authority throughout the organisation. It refers to a systematic effort to delegate to the lowest levels all authority except which can be exercised at central points. It is the distribution of authority throughout the organisation. In a decentralised organisation, the authority of major decisions is vested with the top management and balance authority is delegated to the middle and lower levels.

Difference between Centralisation and Decentralisation:

Basis

Centralisation

Decentralisation

Meaning The concentration of authority at the top level is known as Centralisation. The evenly and systematic distribution of authority at all levels is known as Decentralisation.
Delegation of authority There is no delegation of authority as all the authority for taking decisions is vested in the hands of top-level management. There is a systematic delegation of authority at all levels.
Suitability It is suitable for small organisations. It is suitable for large organisations.
Freedom of decision making There is no freedom of decision-making at the middle and lower level. There is freedom of decision-making at all levels of management.
Flow of Information There is a vertical flow of information. There is an open and free flow of information.
Employee Motivation Employees are demotivated as compared to decentralisation. Employees are motivated as compared to centralisation.
Conflict in Decision There are least chances of any conflict in decision as only top-level management is involved. There are chances of conflict in decision as many people are involved.
Burden The burden of work is not shared and only one group carries the burden. The burden of work is shared amongst all levels.

According to Henri Fayol,” Everything which goes to increase the importance of a subordinate’s role is decentralisation, everything that goes to reduce it is centralisation”.

There cannot be complete centralisation or decentralisation in a practical world. Absolute centralisation means each and every decision is taken by the top-level management, which is not possible. Similarly, absolute decentralisation implies no control over the activities of subordinates, which is also not possible. So a balance should be maintained between centralisation and decentralisation. A proper balance between dispersal of authority among lower levels and adequate control over them should exist.  

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