Nature of decentralization
Organization authority is merely the discretion conferred on people to use their judgment to make decisions and issue instructions. Decentralization is the tendency to disperse decision making authority in an organized structure. It is a fundamental aspect of delegation; to the extent the authority is not delegated, it is centralized. How much should authority be concentrated in or dispersed throughout the organization?
There could be absolute centralization of authority in one person, but that implies no subordinates and managers and therefore no structured organization. Some decentralization exists in all organizations. On the other hand, there cannot be absolute decentralization, for if mangers delegated all their authority, their status as mangers would cease, their position would be eliminated, and there would, again, be no organization.
Different kinds of centralization
The tern â€œcentralizationâ€? has several meanings:
1. Centralization of performance pertains to geographic concentration; it characterizes, for example, a company operating in a single location.
2. Departmental centralization refers to concentration of specialized activities, generally in one department. For example, maintenance for a whole plant may be carried out by a single department.
3. Centralization as an aspect of management is the tendency to restrict delegation of decision making. A high degree of authority is held at or near the top by managers in the organizational hierarchy.
Decentralization as a philosophy and policy
Decentralization implies more than delegation: It reflects a philosophy of the organization and management. It requires careful selection of which decisions to push down into the organization structure and which to hold near the top, specific policymaking to guide the decision making, proper selection and training of people, and adequate controls.
A policy of decentralization affects all areas of management and can be looked upon as an essential element of a managerial system. In fact, without it, managers could not use their discretion to handle the ever changing situations they face.