In business environments we mainly find two types of organizational structures; centralization and decentralization. Both organizational structures act as antonyms for each other. At the same time, there are always long debates about which of them is more efficient and leads to the stability of the organization. In centralization, the power or authority to make decisions is attached to hand-selected people, who are designed as the top management in the organization. On the other hand, in decentralization, the authority or decision-making power is divided between different levels of management, that is, upper management, middle management and lower management. Authority in decentralization is subdivided at the departmental, divisional level or unity.

Comparative chart

What is centralization?

Centralization is the organizational structure, which many governments, organizations or directorates around the world are successfully following. In this structure, the decision-making and power authority is attached to senior management. It is worth mentioning that senior management is made up of the most experienced and trained people in the organization. Therefore, hand-selected individuals are designated as the top ranks of an organization, as they are in the driver’s seat, empowered to steer the organization in the right or wrong direction. Unsurprisingly, this organizational structure has several pros and cons. The most exciting benefit it offers is that decision conflict does not occur between staff, and posture and idea about the job remain clearer. On the other hand, it minimizes the role of subordinates and ends up making employees good followers, not the leaders themselves. In this structure, power is with some people and the rest are only asked to follow their orders. By not seeing an active part in the decision-making process, the lower-level employee sometimes feels quite unmotivated.

What is decentralization?

Decentralization is the organizational structure in which decision-making power and authority is divided into different sublevels, units, and departments. It means that only top management is not involved in decision-making, middle and lower managers also have responsibilities and authority, with their use they can become an active part of the different decision-making processes. With power and authority at more and more levels or employees, organizations make staff more confident and use them to the best of their ability for their success. Not only this, the people who see their authority in the organization, work with more dedication. The adaptation of decentralization is most often seen when two companies get mergers or indictments, with the aim of allowing the employees of both companies to have power. It is equally effective within large organizations, where people selected alone cannot make decisions. For a more effective implementation of this system, open and free communication between authorized persons should be organized on a regular basis.

Centralization versus decentralization

• In centralization, decision-making power is linked to high-level management, while in decentralization, decision-making authority is divided into different sublevels, units and departments.
• Centralization is most effective for small organizations, while decentralization is most effective for large organizations.
• In centralization, few selected people are involved in the decision-making process. On the other hand, more people participate in the decentralization decision-making process.
• In centralization the role of subordinates is minimized, which leads to their demotivation, while in decentralization the conflict decision can take place.