UNIT 25 CENTRALISATION AND

Structure .. . .

25.0 Objectives
. ,
25.1 Introduction
, . 25.2 Meaning of Centralisation
25.3 Meaning of ~ecentralisation
25.4 Types of Decentralisation
25.5 Factors Affecting Centralisation and Decentralisation
25; Merits and Demerits of Centralisation . .I,.

25.7 Merits aid Demerits of Decenti.alisation

25.8 ' Let Us Sum Up . .
25.9 Key Words , .
25.10 Some Useful Books . .
25.11 Answers to Check Your Progress Exercises, ,

25.0 OBJECTIVES
After studying this unit, ypu should be able to:
s explain the concepts of centralisation and decentralisation and the relationship
between the two
e analyse the facmrs that lead to the adoption of either of the two concepts or a

.: . combination of both in an organisation; and

,discuss the merits and demerits of centralisation and decentralisation.

Centralisation and decentralisation are very important concepts of prganisation. They

explain the manner in which the decision making authority' is distributed or delegated
among various levels of the organisation. In this unit, we shall discuss the meaning,
importance and factors affecting centralisation and decentralisation in organisations.
The merits and demerits of centralisation and decentralisation are also examined.

25.2 MEANING OF CENTRALISATION

. Centralisation means the concentration of formal authority at the top levels of an
organisation. It is a tendency aimed at centralised performance. Hence, it is the '
opposite of dispersal anddelegation of authority: It has an important bearing on the
processes of policy form.ulation and decision-making. ~ h e s two e major areas of
management or administration are the!reserves of the top management in acentralised
organisation. The lower levels of the organisational hierarchy always look upwards for .
direction, advice, clarification, interpretation, etc. ~ v e n ' t hfield
e units or agencies of
the parent organisation do not,enjoy any authohty of decision-making and hence are
fully dependent on the central authority, The fieldunits are reqaired tb implement the
decisionsin accordance with the pre-determined guidelines as handed down to them by
the headquarters operating as the central authority. Centralisation acquires its acute
'I form when an organisation operates from a single location i.e., when it does not have
any field agencies. In the words of Harold Koont!!, "Centralisation has been usid to
describe tendencies other than the~dispersalof authority,.... ~t'oftenrefers to
' departmental activities; service divisions, centralised similar or specialised actifrities'in
a single department. But when centralisation is discussed as an aspect of management,
it refers to delegating or withholding authority and the authority dispersal or
, conceiltration in decision-making?'. Therefore, centralisation can be regarded as
. 3
Concepts in organisation-I concentration of pllysical facilities and/or decision maldng authority. Limited and
restrictive use of delegation is, in other words, centralisation. Henri Fayol, while
talking of decentralisation and ccntralisation, observes, "everything that goes ro
increase the importance of subordinate's role is decentralisation, everytliing which goes
t o decrease it is centralisation"

25.3 MEANING OF DECENTRALISA'FION

The term decentralisation is understood differently by different individuals or groups.
Louis A . Allen refers to it as one of the most confused and confusing of the
administrative techniques that characterises the art and science of professional
management. To quote Pfiffner and Sherwood, ''In some respects decentralisation has
come t o be a 'gospel' of management. Firstlyit is regarded as a way of life t o be adopted
as least partially o n faith; secondly, it is an idealistic concept, with ethical roots in
democracy, thirdly, it is in the beginning a more difficult way of life because it involves
a change in behaviour running counter to historically-rooted culture patterns of
mankind. That is why the new literature of decentralisation dwells o n how t o bring
about change in organisation behaviour. Men find it difficult to delegate, t o think in
terms of the abstractions required by long-term planning, to 1isten.rathcr than to give
orders, t o evaluate other men and their work in terms of overall results instead of
irritations and tensions of the moment. Yet this is the very key t o the behaviour recluired
of leaders in a decentralised organisation". It is amply clear that decerltralisation is not
only a device for the delegation or dispersal of administrative authority, hut it is also a
democratic method of devolution of political authority. Further, in a decerltralised
organisation it is also esscntisl to adopt t!~edemocratic norms. Such norms help the
various levels of the administrative organisation to develop a reasonable capability for
the exercise of authority t o reach the most desired decisions. Moreover, they help to
assimilate in them the virtues of greater interactions hot o11ly among the various
organisational levels but also between the organisation and the clientele [among the
general public.
It has been opined that decentralisation refers to the physical location of fiicilities and
the extent of dispersal of authority throughout an organisaticrn. Hence, it is an
arrangement by which the ultimate authority to command and the ultimate
responsibility for results is localisedin units locatcd i r different
~ parts of the country. It
is argued that assigning of functions and responsibility, for their efficient and eflective
performance, to the subordinates or sub-divisions is the essence trf derentrttlisation.
We may say that in a decentralised organisation lower levels are allowed to decide niany
matters and a few cases involving major policies or interpretations are referred t o the
higher levels of the organisation. However, in commonphraseolugy the t c nl ~
decentralisation is interchangeably used with terms like deconcentration, devolution
and delegation, though they have different connotations. Devolution has political and
legal authority ramifications, deconcentration and delegation refer only t o
administrative authority. Decentralisationcovers the political, legal and atimini4trative
spheres of authority.

25.4 TYPES OF DECENTRALISATION

Four different types of decentralisation can be identified viz., administrative.
functional, political and geographical. Administrative decentralisation refers to
decentralisation of authority to the lower officials in the administrative hierarchy of'
organisations. It may also mean decentralising powers o r functions t o the subordinate
units. Functional decentralisation implies that the functions are decentralised to the
specialised units or departments like,education or health. Political decentralisation
involves that the political powers and functior~sconcentrated in the hands of higher
level political organs are decentralised to lower [evel political organs. You are all :]ware
that panchayati raj agencies are units of decentralisation wherein political powers of
decision making are decentralised from state ~ovcrninentto ~anchnvntr;.s:lmi~isand
zila parishads. Finally, in geographical decentralisation. the powers and functions oi'
headquarters are decentralised to the field offices for effective performance for
 >-

example, most of the powers of the heads of departments of the state government are cpntrnllsPtionand DeecntrPlisPlion
d e c e n t r a l i ~ eto~their field officers at the regional and district levels. This facilitates
@ck decision making keeping in view the local requirements.

25.5 FACTORS AFFECTING WNTRALISATIBN AND

DECENTRALISATION
Centralisation and decentrqlisation, being the two extremes of operations of authority,
are relative terms. We, today, cannot think of an organisation which is completely
centralised or decentralised as in between the operations of the two there is always a
continuum of authority. They need to be v~ewedas complementary to each other as a
fair combination of the two results in stability, accountability, efficiency and
,effectiveness. Their applications in a democratic setup would depend upon the
objectives of the organisation, its life and size, nature of service, etc. It has been said
that in order to ensure its existenoe, an qrganisation has to perform certain functions
which are basically centralising in nature and effect: Moreover, their performance has
to be from a central point of authority. Two such major functions are initiation and
decision-making in relation t o basic management functions like planning, organking,
motivating, coordinating and controlling the work of the subordinates as also of the
field units. Thus, the higher levels by performing the functions~ofinitiation and
decision-making tend to reserve the real authority at the central points of the
organisation. On the other hand, Earnest Dale points out that the degree of
decentra1isation.i~greater in the following situations:
i) The greater the number of decisions made a t lower level of management hierarchy, 1

the greater the degree of decentralisation.

ii) The rpore important the decisions made at lower level of management, the greater
the degree of decentralisation. For example; when the head of the field unit enjoys ..\

the authority of sanctioning financial investments or expenditure without

4

consulting any one else.

iii) 1 n a decentralised authority structure, more dedisions are taken at lower levels
which affect most of the functions of the organisation as a whole. Thus, the
organisatio'ns which hermit only operational decisions to be made at separate
branch units are less decentralised than those which also permit financial and ' r(

personnel decisions at branch units.

'ivy When less checking is required on the decision. Decentralisation is greater when no
check at all is made; it is less whenpsuperiorshave to be informed of the decision
after it has been made; still less if superiors have to be consulted before the decision
is made. When fewer are consulted and if they are at a lower level in the
organisation's hierarchy, the degree of decentralisation is more. ,
It is, therefore, clear that the application of the two concepts is greatly ir$luenced by
factors moreqthanone. In modern times when we have a multiplicity of administrative
and political organisations, there is a need to use the centralised and decentralised
patterns of authority for the maximum.benefit of the people. That is a pre-requisite of
a welfare or service state. There has beeii a growing public opinion in fqvour of
decentralisation but at the same time some political forces and the bureaucracy do not
favour a decentralised system for obvious reasons. Pfiffner and Sherwood comment,
that "Qecentralisation will always experienc&a certain amount of epidemic conflict
between those whose purpose is to cbordinate and those whoresist coordination. What
is needed'is to learn a way of life in which the coordinating process will be least
restrictive, in-whidh people can pursue their individual goals to the maximum and yet
work in harmony towird group goals with others who look upon things differently"
As'a'lready pointed out, decentralisation has political and administrative elements.
However, in management or far administrative organisations it is seen as an
administrative device of locating the authority of decision-making in a dispersed
manger. To.th2 contrary, centralisatiqn is viewed as concentration of authority in the
top management. Examining the two cpncepts in terms of physical facilities -plant,
persan.nel and equipmerit6 and authority,'Mervin Kohn opines that a typicai
0rg:rnisatio~exhibits characteristics of both. He has frimed four p~ssiblecombinations
and calls thelil as centralisation-decentrarisation martix which in reproduced below. - 49
 CENTRALISED DECENTRALISED
(concentrated) (dispersed)

Plant, Product, servicesand Products, services and

Personnel, busigess functions business functions
Equipment concentrated in one scattered in many areas;
(Facilities) building or in multi-plant operation;
several buildings within each sub-unit is a separate
a localised aria. entity; may be autonomous
self-sufficiententity
performing most major
business functions.
Authority High degree of concent- High degree of delegation and
(Decision-making) ration and retention dispersion of decision making
of decision-making at horizontally or vertically
upper levels of management; downward to lower levels of
subordinates highly management; subordinates ,

dependent. relatively;ndependent;
"Profit Centre" concept.

The above figure gives us four possible combinations and the extent of centralisation
and decentralisation differsin all of them. Now we explain these combinations as under:
1 The first combination indicates a high degree of concentration of facilities as also of
authority in the top levels of the organisation hierarchy. These levels also perform all
the management functions of decision-making and directing their effective
implementation. Such an organisation may exist under the government especially
dealing with sensitive subjects like defence or some aspects of defence production
and also in some situations in the ministry of foreign affairs.,It is a case of minimal or
no delegation of authority. In private industry it resembles the units operating under
single or family ownership whose area of operation is smaIl or well manageable bj
the owners.
2 The second combination results in an organisation whose physical facilities are
centralised at one place. In,otherwords, the products and services are centralised but
the decision-making.authority is delegated horizontally and vertically. The level to
which the authority of decision-makingis delegated remains accountable to the .
higher levels for effective management as its decisionsmust be in conformity with the
overall policy of the top manzgement. Such type of situation may befound in service
agencies like the State Trading Corporation or the agencies concerned with foodgrain
procurement and engaged in the public distribution system like the PUNSUP in the
state of Punjab,
3 Thirdly, we may come across an organisation in which physical facilities are dispered
among various units located in various partsof the country or a regidn but the major I
deeision-makingauthority is centralised in the top levels of management. The units
may be vested with only small authority like sanctioningof leave, overtime, etc. Thus
1
authority to perform a limited number of management functions, which are
consequeritial of the major policies, is delegated so as to enable them to implement
the minor aspects of the major'policies. Significant and major policy matters are
reserved to the top management and are located at the central office or the
headquarters. Various road transport organisations both in the public and,private
a
sectors, largely fall in this category.
4 Lastly, a situation in which both the physical facilities and the deeision-making
aut'hority is dispersed or decentralised between various levels and the units, we get
an organisation based on administrative decentralisation or deconcentration. Such
an organisation performs wide ranging fuhctions and the units are allowed significant ,
functional autonomy. TheHindustan Machine Tools Ltd., falls to a great extent, in
this category. Mervin Kohn also refkrs to the 'profit centre' concept as part of this
model of organisation. It may be mentioned that this concept can only be applied to
private businks which is largely run on profit motive. However, in government
orgadsiltions.profit is seen in terms of productivity or social and economic gains that
are advantageous to the nation as a whole or to a seaion of the people.for whom a
. particular service is sperzifically intended. , v

I
 We may siiy that the adoption of one or a mix of both would depend upon the Centralhtbn and Dtrentrallsation
organisation and its objectives, the nature of functions, the products or services, long
term plans and the overall strateg~..of production and marketing. Hence, the
equilibrium between centralisation and decentralisation would vary with the internal
and external forces in operation. "Internal forces emanate from the requirement of the
principle of hierarchy based on the superior-subordinate relationships, on the one
hand, and the nature of services, on the other. External forces axe based on the
relationship with the clientele, on the one hand, and the environment in which the
organisation functions, on the other". Much would depend on the maturity of the
people and levels of development in a country. In the words of Muttalib, "... the
operation of the principle of hierarchy may not exhibit much authoritarianism when
members of the organisations and the clientele are drawn from,asociety that value
greatly the egalitarian concept". F w the success ufpoliti~aland admipishtiw41
decentralisation, Pfiffner and Sherwood suggest that decentralisation needs, very
careful treatment for achieving the desired benefits. Moreover, it requires maturity and
character, not only on the part of the individual members of the organisation but also
in the culture of the larger society as well as the subculture of the organisation itself.

Check Your Progress 1

Vote: i) Use the space below for your answers.
ii) Check your answers with those given,at the end of the unit.
1 What is centralisation? In what way does it differ from decentralisation?

2 . What factors contribute to greater decentralisation?

...................................................................................................

3 Explain Mervin Kohn's centralisation-decentralisation matrix.

.- 1

25.6 MIERII'SS AND DEMERITS OF CENTRALISATION

Now we shall qnalyse the merits and demerits of the concepts of centralisation and
decentralisati~n.Organisations based on the principle of centralisation provide central
direction both in the formulation and the execution of policies and programmes. In the
words of Lou$ A. Allen, such a; organisation facilitates the introduction of dynamism
in the organisation through the active role of personal leadership; helps in integrated
I
.-.
-

- in ~rganisation-II
concrp~s approach foecarrying out organisational operations which result in uniformity of
action. Moteover, this concept is quite handy in emergencies and for dealing with .
unanticipated matters. I

Merits of Centralisation
a) It is .eaSier t o develop uniform policies and, practices i n a centralised organisation.
Moreover, it can effectively achieve conformity to the prescribed procedures and
can bring about better coordination among the various units and levels of the
organisation.
b) Such a system further adds to the prestige and influence of the top executives.
Authority being concentrated at the top level, it is easier to identify the key person1
persons who exercise the real a u t h o r i t ~This is helpful in creating a suitable climate
for fulfilling the aspirations of those executives or leaders who prefer to combine
prestige with real organisational operations.
I c) If process of centralisation is strengthened, duplication in an administrative
organisation can be avoided.
d) It has been claimed by Menin Kohn that a centralised organisatioh deveTops a
corporate personality by enabling the full utilisation of the personnel and the
equipment in organisation.
4

It may be said that the merits of centralisationare very much limited and can largely be
obtained in small sized organisations. m ow eve^, in bigger organisations it becomes a n
obstacle for effective polioy formulation and its implementation.

~ e m e r i t of
s Centralisation
a ) A centralised organisation does not allow the development of second line of
executives as all the lower levels are more dependent on the orders and directions
of the top executives. The emergent situations require immediate decisions for
reaching the desired solytions. In a centralised organisation, if erpergencies arise at
the unit level, their solutions becomes difficult by the unity itself as they do not e n j o y
any decision makirig authority.
(1

b) The concept of centralisation works against the possible diversification or expansion

of the organisation. The local needs of the organisation cannot be understood in t h e
right perspective by the centralised executive.
I
1
c) There is a minimum use of the concept of delegation of authority because real
authority always lies in the top levels of the organisation. Thus for a decision on
every matter, the top executive has to be approached. Therefore, such an
aorganisation concentrates all decisional authority in a few persons and makes
majority of the personnel only as implementers of orders received from above.
d) As the subordinates have to approach the superiors for taking even minor decisions,
the work in the organisation suffers and unnecessary delay is caused.

25.7 MERITS AND DEMERITS OF PECENTRALISATION.

1
~
It has been observed by many scholars that in a decentralised organisation l o w e ~ l e v e l '
managemdnt hierarchy enjoys considerable decision making authority and the number 1

of decisions made at the lower levels is quite large as compared to the decisions t a k e n
at the top levels of the organisation.

hierits of Decentralisation
. I

a) A decentralised organisation 'is more responsive'to the needs anddemands of the

local area and the people. It can understand and assess the real problems and,can .
. take decisions for their effective solutions. The local government institutions in .
Britain enjoy a substantial authority for dealing with local problems. In the I n d i a n
I
context, the local government institutions have been given some limited authority
for taking decisions at the local level. , .
 6)
Delegation of authority is an essential aspect of a decentralited orginisation. The
: higher levelorganisations share their authority with the lower level orgqnisations.
Centralisation and Decentralisation

i In the process the top levels deal with very important matters; whereas, the lower . .
levels are left free to tackle less important issues. Hence unnecessary burden on top
management is avoided.
c) A decentralisedorganisation encourages innovations as it welcomes creative ideas
and new techniques recommeqded by the lower levels of the Gganisation.
Moreover, this system tries to assimilate the best of the generalist and specialist
personnel working in the organisation. It leads to more interaction among the
personnel. Futther, a decentralised system encourages the expansion of the
organisation and permits desirable diversification for effective achievement of goals.
Louis 4. Allen observes that a decentralised organisation helps to:
i) base the burden on top executives or on those who operate from the central points
ii) facilitate 'diversificatibn
iii) make decisions at the scene of action for effective and fruitful delivery of goods and
I
services
iv) encourage development of meaningful talents
v) improye motivation of people within the organisation
/

Apart from various advantages of decentralisation there are many draw backs of this
, system too. Some scholars feel that decentralisation may lead to disintegration and may
considerably weaken the top levels of an ,organisation.

Demerits of Decentralisation
a) In 4 decentiiiiised organisation communication among various levels becomes
'
difficult. At times the message communicated from top becomes blurred and
changes its contents and meaning when it reaches the concerned individual in the
organisation. Moreover, geographical distancedalso create problems in the way oq
effective communication and control systems.
b) It is very difficult to introduce effective system of coordination both at policy making
'. ' and policy iniplementation levels.
' c) It leadqto overlapping and duplication of efforts in most of the organisationsas they
fail to clearly identify and define the activities and responsibilitiesin precise terms.
Duplication in the performance of staff functions is a rule rather than an exce'ption
in a decentralised organisation.
d) It may become difficult to maintain desired uniformity in the standards in d,ecision
making due to comparatively less control of the higher levels df the organisation.
e) The decentralised system necessarily results in higher costs of its operational
aktivities. For such a situatiqn there can be many factors but one easily identifiable
factor is the underutilisation of the availab1.e talent in the organisation.
'W
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Check Your Progress 2
Note: i) Use the space below for your answers,.
ii) Check your answers with those given at the end of the unit. - I
' . 1 Discuss the merits and demerits of centralisation.
. . , , 4
I

.................. . . . . . . . . . . . . . . . . . . . .....................................;..........................
"
Concepts in Orgnnisation-1 2 What are the major advantages of decentralisation?

25.8 LET US SUM UP

Centrdlisation and decentralisation are important principles for the formation of an
organisation. They deal with authority distribution within an organisation. Under a
centralised system authority is concentrated at the top levels. The lower levels always
depend on the top levels for direction', guidance and advice. Under this system field
agencies or the area units are only implementation agencies guidelines for which are
given to them by the central authority. On the other hand, deccntralisation refers to the
democratic method of devolution of administrative and political authority. It also refers
to the physical location of facilities like plant and personnel and the extent of dispersal
of authority throughout the organisation. We may say that under decentralisation
lower levels are allowed to decide many matters and only a few cases are referred to the
higher levels: However, in common phraseology, the term decentralisation is
I
interchangeably used with terms like deconcentration, devolution and delegation,
though they have different connotations. Devolution has political and legal authority
ramifications. Deconcentration and delegation refer only to adrpinistrative authority. ,
Decentralisation covers the political, legal and administrative spheres of authority.
0

Degree of decentralisation is greater when more decisions are taken at the lower levels
both in routine and important matters, In other words greater the freedom allowed to
the subordinate levels the more decentralised organisational structure will be. Under
this system there is less control and supervision of the higher levels over the subordinate
units. Mervin Kohn opines that depending upon the location of facilities (plant,
personnel, etc.) and decision-making authority, we get four ,models of an organisation
where authority.concentration or its a'id'lBpersal gives us a centralised o r decentralised
organisation. Both theke principles have their relative merits and demerits. We can use
either or both depending upon the nature, objectives and the area of operation of the
'biganisation.

25.9 KEY WORDS

Amply: Extensively
Assimilate: Absorb
*7
 profit Centre Approach: Under this the Company establishes self-sufficient,self- Centralisation and Decentralisation
contained and semi-autonomous units which are responsible for their own profit or
10s;. In such units profits become a direct concern of individuals, it means each unit
1 becomes a "profit centre". This helps in stimulating personal efforts.
, Ramification: Forming sub-divisions.

25.10 SOME USEFUL, BOOMS

Avasthi A and Maheshwari S.R.,1985. Public Administration (14th rev. ed); Lakshrni
Narain Agarwal: Agra.

1 , Mathur B .S., 1987. Principles of Management; National: New Delhi. f

/ I
Pfiffner John M and Sherwood, Frank M,'1968. Administrative Organisation; Prentice-
Hall,of India Pvt. Ltd.: New Delhi.
.
Special Number on Decentralisation -Indian Journal of Public Administration, July-
September, 1978.
u

25.11 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress 1
1 See Sec. 25.2
2 Sec Sec. 25.3

Check Your Progress 2

1 See Sec. 25.6
2 Sec Sec. 25.7