Difference Between Centralization vs Decentralization

Difference Between Centralization vs Decentralization

It would seem that centralization and decentralization are conflicting terms. These terms, like numerous words in the English language, can sometimes be tricky, and this article will help you easily identify the former from the latter. To be more specific, these terms are both structural classes that can be spotted in society, like in the government, management, organization, and supply chain.

For starters, centralization refers to the tasks that are involved in planning and coming up with decisions for an operation. Decentralization refers to the movement of the governance system within an operation. This article will touch further on the difference between centralization and decentralization to eliminate any confusion and allow proper context on the usage of these terms in daily conversation.

Definition of Centralization

Centralization is referred to as the proceeding of and steps involved in planning and arriving at a decision within an operation or an institution. It focuses mainly on a specific individual in the leadership ranks or the location where the group operates.

When an organization is centralized, the primary decisions will be provided by the head office, and the offices underneath the center of power go by the head office’s decisions. The critical decisions that will impact the organization are also received from the main office.

This type of governance has various upsides. It allows for a transparent chain of command, allowing for more swift decisions. It also allows for a focused vision as the decisions come from the same source, therefore allowing the decisions to be in line with the organization’s ultimate goal. With this design, the work is standardized.

Definition of Decentralization

Decentralization is, by standard definition, referred to as the movement of responsibility and influence from the central source to its sub-governments, sub-functions, or subsectors, which makes it a multi-faceted term that covers various processes. Because of its complexity, it is categorized under different types. It can be classified as political, administrative, fiscal, and market-based.

The power is disseminated within the organization, allowing for divided responsibilities and diverse perspectives as to how the organization will be run. Political decentralization allows for citizens or officials elected by citizens to have a say in decisions that affect public interest.

Administrative decentralization allows for a semi-autonomous brand of supervision where the planning, financing, and managerial functions are delegated to various units with the collective.

The fiscal type focuses on financial responsibilities that are commissions to various branches. Finally, market decentralization has something to do with privatization and deregulation of government functions.

Main Differences Between Centralization vs Decentralization

In the battle of centralization vs decentralization, what are the key differences? Aside from the added prefix in the latter, the shift in governance is the primary variance between these two terms. A shift from one to another can either make or break an organization, and it is important that the decision to make the change is arrived at carefully.

Basis of ComparisonCentralizationDecentralized
MeaningType of governance where the decisions are coming from a central place.Type of governance where decisions are spread and allocated across sub-government units.
Responsibility allocationCentral to the main/ home officeDelegated and disseminated
DesignSystematic and focusedDiverse
Spread of decisionsDownwardsMulti-directional
BenefitsDecisions are aligned to the company vision.Responsibilities are shared, and decisions may be more innovative.
DrawbacksDisagreement of subordinates to the decision.Departure from the organization’s vision.
Preferred forSmall organizationsMulti-level organizations

It is clear that there are various contrasts between centralized vs decentralized organizations, which is why it is important that the structure of a company’s governance is known.

Difference Between Centralization and Decentralization: Conclusion

When pondering on whether the organization you’re in uses a decentralized vs centralized type of decision making system, look at where the directives are coming from. If they come from the department heads or the functional leaders and the instructions are similar, it is most likely a centralized type.

If, however, the decisions are diverse and dependent on each key area’s manager’s ideas, then it is most likely a decentralized one. There’s no right or wrong type, but the choice will greatly influence how the organization is run in the long term.