Factors Determining Centralization or Decentralization of an Organization

It is not possible to completely centralize or decentralize an organization. The degree of delegating authority and other factors decide the amount of centralization or decentralization of an organization. These factors are-

History of an Organization

An organization built by any individual efforts encourages centralization whereas an organization that passes through several mergers, acquisitions and consolidations, allows decentralized authority.

Availability of Competent Managers

Competency of managers is another important factor that determines degree of decentralization of authority in an enterprise. When managers do not have enough skills or talent, it is not possible to decentralize an organization. Incompetent managers will not be able to handle decentralized authority.

Organization's Size

When an enterprise begins to expand, it tends to decentralize its authority. In different levels, many decision-making processes happen at the same time. Hence, coordination becomes tough in such conditions. Decentralization helps to divide the organization into smaller units to facilitate faster decision-making.

Geographic Territories

If organization has its branches in different locations, decentralization works best for such diversified units. Managers for each such unit will be responsible for operating the units and generating profits.

Complexity of Tasks

Top-level managers and management handle all issues related to technological advancement in an organization. Yet, it becomes mandatory for the management, to delegate technically critical tasks to experts in that area. Hence, decentralization works well in case of such complex situations.

Time for Decisions

After decentralization, it becomes easier for heads of each department, to make timely decisions and survive the competitive markets. Problems need not be pending for the purview of the top management. Closed or centralized authority delays timely decision-making.

High risk decisions can be made by the top management while routine and risk-free tasks can be delegated to the lower level managers.

Planning and Controlling

Allocating planning activities depends on subject-wise allocation and plan-wise allocation. In enterprises with clear policies, managers can make decisions without waiting for top management approvals. When lower level managers have that kind of freedom, it is known as a decentralized organization.

Views of Subordinates

Dynamic, well-trained subordinates enable decentralization of authority. Such employees will also accept responsibilities and achieve the given goals. On the other hand, subordinates who do not wish to accept responsibilities consider decentralization as a threat.

Government policies and factors also determine the amount of decentralization for an organization. Organizations under government control continue to be centralized. Dynamic organizations require decentralized authority.