Centralization and decentralization

Centralization is a form of management in which power is concentrated in an authority or institution, which is the one who gives the guidelines that must be executed by the rest of the linked entities.

Decentralization is a form of management in which power is exercised by various authorities or institutions.

What is centralization?

Centralization is a method of power administration in which decisions are made and executed by a single authority, which may be represented by a person, group or institution.

Power is exercised and managed vertically, since the rest of the people, departments or institutions are subordinate to the central authority.

Characteristics of centralization

Centralization has three specific characteristics:

High concentration of power in a few people (sometimes just one), who is the one who makes the decisions and in many cases, executes them.

When the central power is not in charge of executing the guidelines, then it is responsible for ordering their execution to the subordinate persons or entities..

Decisions made at lower levels must go through the approval of the central power, since they do not have autonomy..

Types of centralization

There are two basic types of centralization: administrative, referring to the concentration of governmental power, and organizational centralization, which has to do with the management of power within companies and organizations..

Administrative centralization

In this case, decisions are made from the executive branch, which assumes the function of the central body of power..

Although there are other governmental instances, these are subordinate to the directives of the central power, embodied in the figure of the President.

Organizational centralization

It is the management of power and decisions within a company or organization outside the public sphere.

In organizational centralization, the management of power falls to a specific department or area, directed by a person or group of people, who occupy managerial or supervisory positions..

Organizational centralization is in turn divided into two types:

• Departmental centralization: refers to the concentration of obligations in a specialized department. For example, the systems department is in charge of all the decisions that have to do with the technological operation of the company..
• Performance centralization: it is when a company department is located in a geographic location because it is strategic for its operations. For example, when it is decided that customer service will only be carried out in the branch located in the capital of the country, because it is where the largest number of customers is concentrated.
• Centralization as a managerial aspect: in this case, the decisions are made by senior management, and the other managements or departments support with the execution of the tasks.

Advantages of centralization

Either from a political-administrative or organizational point of view, centralization can bring some advantages in decision-making:

• As there is a single authority, communication is much more efficient and fluid, since it derives from a single source.
• By concentrating so many responsibilities on one person or group of people, they must be highly trained academically, intellectually and emotionally to take on the challenges that this implies..
• Duplication of tasks is avoided (several people or departments working on the same solution), since the roles are defined.
• Establishes the idea of ​​strong leadership, which can be stimulating for the rest of the organization.

Disadvantages of centralization

The concentration of important decisions in a small group of people can generate some negative consequences that hinder the processes.

• The larger the organization, the greater the distance between the central power and the subordinate bodies. In administrative centralization, this can lead to more bureaucracy.
• As power is in the hands of a very small group, the functioning of other instances is often neglected, generating administrative problems and frustration among subordinates.
• High staff turnover can be encouraged, as it is assumed that only the work done by the management group matters, and that the efforts of subordinates are underestimated.
• If the group in command fails or is not efficient, it causes the collapse of the entire organization.

See also Federalism and centralism

What is decentralization?

It is a way of managing power by sharing it with other people, groups of people, instances or departments. In this way, those involved are responsible for the decisions they make.

In this sense, decentralization helps to decongest the central power, distributing hierarchy, workload and responsibilities.

With decentralization there is still a central power that must be held accountable, but the people or departments involved have greater autonomy to generate solutions.

Characteristics of decentralization

• The central authority transfers responsibilities to subordinate bodies.
• These instances have independent procedures, which do not require the approval of the central entity..
• Decisions are participatory in nature.
• The central power supervises the decisions, but they do not depend directly on it.
• Decentralization can have different levels of management: from a discreet decongestion of power to dependencies that are 100% autonomous with respect to the central instance..

Types of decentralization

Decentralization can be organizational or political-administrative. In this case, there are several types of decentralization.

• Vertical decentralization: the central power delegates powers to lower levels.
• Horizontal decentralization: power management is distributed in instances with equal hierarchy (ministries)
• Territorial decentralization: decision-making is left in the hands of an institution or department that has competences in a territory (governorates, regional institutes, etc.)
• Fiscal decentralization: each entity manages its own budget, takes charge of the provision of services and takes care of its own tax management.

Advantages of decentralization

Decentralization can have important advantages for the entities involved in terms of resource efficiency. These are some of them:

• Decentralization makes decision-making more efficient, since it does not require a long chain of command or authorization from the central power.
• Decentralization implies a higher level of specialization and training of those responsible for each instance or department.
• By not requiring the approval of a central power, the solutions require less bureaucracy.
• Resources are managed according to the needs of each entity.
• There is a higher level of interaction and sense of responsibility among the members of the institution or department to whom power was delegated.

Disadvantages

A poorly executed decentralization process can have serious consequences in the organizations in which it is carried out, for example:

• In the absence of effective communication, each instance may work on the same solutions in parallel, duplicating tasks.
• If the responsibilities are very diluted and there is no support from the central power, it is possible that the objectives are not achieved, or that each instance generates particular results that are not aligned with the general objectives.
• The lack of adequate training can generate failures in the operation of the department.

See also Federalism and centralism