This article justifies that complete centralisation or decentralisation of authority does not exist in an organisation.
Centralisation and decentralisation help to coordinate organisational activities. While delegation assigns responsibility and authority to people from one level in the organisational hierarchy to the other, centralisation and decentralisation refer to the extent to which authority and responsibility are passed to people at lower levels.
If authority to make decisions is retained at top levels, the organisation is said to be centralised; if the decision-making authority is distributed widely throughout the organisation and lower level managers have the authority to use resources at their discretion, the organisation is said to be decentralised.
To begin with, authority is retained at the top. As the organisation size increases, the scope of authority gets narrow at top levels and gets distributed to lower-level managers. To what extent it flows down the level depends on the degree to which the organisation is decentralised.
Centralisation is “the extent to which power and authority are retained at the top organisational levels” and decentralisation is “the extent to which power and authority are delegated to lower levels.” No organisation can be completely centralised or decentralised.
In a completely centralized organisation, all decisions will be taken by top managers and there will be no subordinate managers. In a completely decentralized organisation, authority to make decisions is delegated to lower-level managers and, therefore there will be no top managers. Both the structures cannot exist absolutely.
Complete centralisation or decentralisation, thus, does not exist. Overall planning and organising are initiated by top managers and some authority is decentralised to operating units to carry out the work within the overall policy framework.
All successful companies delegate authority to lower level managers though the extent to which it is delegated depends upon different factors. Centralisation and decentralisation are the two extreme points with more or less authority delegated in between.
The Centralisation-decentralisation continuum appears as follows:
As we move from left to right, the degree of centralisation decreases and decentralisation increases.