IGCSE BUSINESS STUDIES Topic : Centralisation and Decentralisation

Centralisation and Decentralisation

Centralisation implies the concentration of authority at the top level of the organisation while decentralisation means dispersal of authority throughout the organisation
According to Allen

Centralisation is systematic and consistent reservation of authority at central points within an organisation. Decentralisation applies to the systematic delegation of authority in an organisation context.

Advantages of Decentralisation

• Decentralisation reduces the workload of top executives.
• It improves job satisfaction and morale of lower level managers by satisfying their needs for independence, participation and status.
• Decision making is quicker.
• It facilitates growth and diversification. As each product division is given sufficient autonomy for innovation and creativity.
• It gives opportunity to subordinates to exercise their own judgment. They develop managerial skills which will be useful to the organisation in the longer run.
• Decentralisation requires wider span of control and fewer levels of organisation. It speeds up communication.
• Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained personnel.
• As each department or division enjoys substantial autonomy it might lead to co-ordination problems.
• There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures.

Disadvantages of Decentralisation

• Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained personnel.
• As each department or division enjoys substantial autonomy it might lead to co-ordination problems.
• There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures.

Advantages of Centralisation

• Effective utilisation of talents of the top management.
• It reduces co-ordination problems as a unifying force integrates all operations.
• It allows the development of a strong co-ordinates top management team.
• There is uniformity of policies and plans across the organisation.
• Centralisation organisations are best suited where resources and information has to move swiftly, especially in emergencies.
• Duplication of functions and facilities is minimised which in turn reduces costs.
• Due to the fact that all decisions are made at the top it might result in delays in decision-making and communication.
• Centralised power and authority might be abused.
• Doesn’t give an opportunity to lower level managers/supervisors to develop their managerial skills.
• Centralised organisation faces the problem of lower motivation levels among workforce.
• The success of organisation depends on the competence of top executives which might be quite risky.

Disadvantages of Centralisation

• Due to the fact that all decisions are made at the top it might result in delays in decision-making and communication.
• Centralised power and authority might be abused.
• Doesn’t give an opportunity to lower level managers/supervisors to develop their managerial skills.
• Centralised organisation faces the problem of lower motivation levels among workforce.
• The success of organisation depends on the competence of top executives which might be quite risky.