Centralization and

Decentralization of
Authority
Unit- III
Meaning of Delegation of Authority
Authority is said to be when a superior assigns a part of his rights to a
subordinate.
In simple words, to delegate means to entrust authority to a subordinate
in certain defined areas and to make him responsible for results.
Features of Delegation of Authority
1. Delegation occurs when a manager grants some rights to a
subordinate.
2. A manager cannot delegate authority unless he himself possesses
the authority.
3. A manager never delegates all his authority to subordinates. He
transfers only a part of his authority.
4. Delegation does not imply reduction in the status of a manger. The
manager retains the right to exercise control over the subordinates. A
manager can reduce, enhance or take back the delegated authority.
5. Delegation never means abdication of responsibility. No manager can
avoid his responsibility by delegating authority to subordinates.
Elements ( Process )of Delegation
The process of delegation involves the following steps.
1.Assignment of Duties
A manager defines the duties or tasks to be performed by
his subordinates. Before assigning duties to subordinates
an executive subdivides his job and allocates a part of it to
each subordinate. He also defines the results expected of
subordinates.
2. Granting Authority
An executive then confers on his subordinates the rights
necessary to perform the duties assigned to them.
Subordinates are authorized to use resources, to take
decisions , to represent the superior.
3. Exacting Responsibility
Exaction of responsibility implies creating an obligation and
to hold the subordinates accountable for results.
Decentralization
When decision making authority is dispersed throughout
the organization, so that decisions are made largely near
the point of action , it is decentralization.
The degree of centralization can be measured by the
number, scope and importance of decisions made at lower
levels and the amount of checking required on them.
The type of authority delegated, the level to which it is
delegated and how consistently it is delegated, indicate
the degree of decentralization.
Advantages ( Need ) of Decentralization
1. Reduction in the Burden of Chief Executive
It relives top executives from operating details, so that they
can concentrate on more important problems of policy
making and control. In case of centralization, the chief
executive is over burdened with work of decision making.
2. Promotion of Initiative
Decentralization promotes initiative and responsibility on
the part of subordinates who decide for themselves. It leads
to effective supervision as lower level executives have
complete authority to regulate the behavior of workers.
Full use can be made of executives at lower levels.
3. Improvements of Motivation
Decentralization improves the motivation and morale of
subordinates. Involvement in decision making creates sense of
belonging and makes lower level job more challenging. It also
facilitates communication and satisfies needs for power and
independence. It fosters team spirit and group cohesion among
subordinates.
4.Continuity of Organization
Decentralization makes for stability and continuity of organization.
Success and survival does not depend on a few individuals.
5. Executive Development
Decentralization facilitates the development of future executives.
Lower level people learn by exercising delegated authority. They
have opportunity to try their ideas and prove their calibre.
6. Quick and Accurate Decisions
Decisions are likely to be made more quickly and are likely
to be more realistic as they are made by those who know the
situation thoroughly and who are to execute them. It reduces
red tape a and places decision making power in the hands
of the people in the hands of the people who are well aware
of the realities of the situation.
7.Growth and Diversification
Decentralization facilitates growth and diversification as size
is not limited to few executives and there is a continuous
supply of managers. Semi- autonomous units can be set up
under the overall direction and control of top management.
Diversification in turn leads to spreading up of risks.
8. Democratic Management
Decentralization makes for democratic management. People at
lower levels do not feel from the top and there is little danger
of administration becoming top heavy .
9.Comparative Evaluation
Divisionalization of the organization enables comparison
between different departments. This helps in locating sources
of inefficiency and in increasing profits of the enterprise. It
offers several internal and external economies in operations.
10.Greater Flexibility
Decentralization increases the flexibility of the organization.
Division of organization into small autonomous units enables
full control by individual executives. They have the authority
to effect necessary changes without dislocating the entire
structure.
Disadvantages of Decentralization
1.Diificulty in Coordination
Decentralization makes coordination difficult.
Decentralization units tends to emphasize their own
operations without regard to one another. Executives
may adopt narrow outlook and sectional interests may
overshadow organizational goals. There may be lack of
uniformity and consistency of action.
2. High Administrative Expenses
Administrative costs increase due to duplication of
facilities. Trained people are needed at all levels to
accept and exercise.
3.Decentralization
Decentralization may restrict timely action in case of
emergencies.
4. Inappropriate for Small Units
A small organization may work more efficiently under
centralized control of a dynamic leader. Creation of
autonomous decentralized units requires broad product
lines which is not possible in small firms.
5.External Constraints
In certain cases, decentralization may not be feasible due
to external constraints and uncertainties. Centralization
may be necessary to ensure uniform action in important
matters, e.g., personnel relations.
Factors Determining Degree of Decentralization
The extent of decentralization that a management will adopt depends
upon a variety of factors. They are described below :
1.Size and Complexity
A very large and diversified firm finds it hard to practice
centralization. Top management cannot personally take all
decisions of the enterprise. Such organizations are therefore
decentralized to a great extent than a small organization with
limited operations.
2. History of the Enterprise
Firms that have been built under the personal leadership of
owners are likely to minimize decentralization. On the other
hand concerns created through combination or group
leadership tend to emphasize decentralization.
3.Management Philosophy
The attitude and temperament of top executives has an
important bearing on the degree of decentralization.
Executives who cannot tolerate mistakes and who want
to dominate delegate little authority.
This is often true of managers who have been promoted
and continue to make decisions that should be
delegated.
On the other hand executives who trust subordinates are
receptive of others ideas and are willing to use broad
controls delegated to the maximum possible extent.
They consider decentralization a means of executive
development.
4. Availability of Qualified Executives
Dispersal of decision making is possible when the lower level
staff is of high calibre.
But shortage of qualified staff should not be an excuse for
centralization.
Decentralization itself is essential for the development of good
managers.
5. Location of Operations
Authority tends to be decentralized when performance is
decentralised.
Geographical dispersion of activities makes communication
difficult under centralized decision making.
However physical dispersion does not necessarily lead to
decentralization. For example the executive of a store in the
chain system has little authority for decision making.
6. Importance of the Decision
Greater is the impact of a decision on the success and survival
of the enterprise, greater is the degree of centralization.
Vital and crucial decisions are made at higher levels. This
does not imply that senior executives always make lesser
mistakes than junior ones.
The reason is that vital decisions involve heavy responsibility
and top management has ultimate responsibility for the
success of an enterprise.
7. Uniformity of Action
Greater is the need for uniformity of policy or action, greater
is likely to be the degree of centralization. That is why pricing
wage fixation and public relations are more centralised than
production and sales.
8. Control Techniques
Delegation does not absolve a manager of his responsibility.
Decentralization is therefore greater when techniques available
for controlling subordinates actions are effective.
Well established procedures and improvements in statistical ,
accounting and other techniques have enabled grater
decentralized in large organizations.
9. Business Dynamics
The rate of change in the industry affects the degree of
decentralization because a decentralized organization is
more flexible.
A growing and fashion goods industry is likely to be more
decentralized than an old and well established firm
providing necessities.
10. Environmental Influences
External factors like government policy , trade
unions, tax policy etc, also influence decentralization.
Where price is subject to legal control, local managers
cannot be given the authority to fix prices.
Wage and other disputes have to be handled at the top
level where national unions are involved other
disputes have to be handled at the top level where
national unions are involved.
Span of Management
Span of Management or span of control refers to the
number of subordinated which a manager can
supervise and control effectively. It is also known as
Span of supervision.
There is a limit to the number of persons which a
person can supervise and control effectively.
The problem of span arises because an executive has
limited time, limited attention and limited mental and
physical energy.
Span of Control
Span of control means the number of people reporting
directly to a position.
The principle of span of control implies that no single
executive should have more people looking to him for
guidance and leadership than he can reasonably be expected
to supervise.
It is said that control is efficient when number of
subordinates reporting directly to a manager is small.
If the number of subordinates reporting directly too one
superior is large. Supervision and control become loose.
But when the number is very small control may become
too tight and full use of the superiors ability may not be
made.
Centralization
When authority is concentrated largely at higher
levels of management and majority of decisions are
made at a level higher than the point of action., there
is Centralization.
According to Allen, Centralization is the systematic
and consistent reservation of authority at central
points in an organization, while decentralization
refers to consistent and systematic delegation to the
lowest levels all authority except that which can only
be exercised at central points.
Merits of Centralization
1. Effective utilisation of top managerial leadership
2. Better coordination
3. Uniformity of policy
4. Less duplication of functions and facilities.
5. Effective control.
Demerits of Centralization
6. Delay in decision making
7. Possibility of misuse of power.
8. Lack of development of talent at lower levels
9. Low motivation and morale of staff
10. Difficulty in growth and expansion.
Factors Responsible for Centralization
1. To facilitate Personal leadership
. In the early stages of an enterprise and in small firms, the
success depends largely on the personal leadership of a dynamic
and talented leader.
. Authority may be centralised to give full scope to facilitate
personal leadership which may result in quick decisions and
imaginative action.
2. To provide Integration
. Coordination of individual efforts is essential to the success of
every organization.
. Centralized direction is an effective means of unification and
integration of individual efforts.
. It acts as a binding force on the various parts of the
organization.
3. To Achieve Uniformity of Action
Where uniformity of policy and action is required,
authority may be centralized at the top.
Such uniformity is often desirable in personnel,
purchasing and advertising.
Therefore authority in these tends to be centralised.
4. To Handle Emergencies
When competition is very acute or the emergency is
urgent and immediate, the need for centralized
decision making is very great.