Centralization and decentralization are two different types of organizational structures that can be found in various organizations, management, and even in purchasing. The main differences between centralization and decentralization are as follows:
Centralization:
- The concentration of decision-making power is in the hands of top-level management.
- The authority for taking decisions is vested in the hands of top-level management.
- Managers at the lower level have a limited role in decision-making.
- Communication flow is vertical.
- Decision-making is slow.
Decentralization:
- The dissemination of authority, responsibility, and accountability to various management levels.
- The authority of major decisions is vested with the top management, and the balance authority is delegated to the middle and lower levels.
- Employees are empowered to make their own decisions that will benefit the organization, which results in a high level of employee satisfaction and boosts the productivity of an organization.
- Communication flow is open and free.
- Decision-making is comparatively faster.
Centralization is ideal for small-sized organizations, while decentralization is ideal for large-sized organizations. Centralization makes sense when scale or standardization is a major factor when it comes to costs, or when specialized production capabilities are necessary, or when manufacturing strategy is a strong component of business strategy. Alternatively, decentralization is more appropriate when different products for individual markets are needed or when the company must respond quickly to changing or regionally differentiated customer needs.
