Chapter 10, Problem 1Q

Explain how centralized and decentralized companies differ. What are the advantages and disadvantages of each?

To determine

Introduction:

Centralization is a process in which the control of activity lies in the hand of single authority.

Decentralization is a process in which the authority is delegated to other levels of the organization.

To state:

The difference between centralization and decentralization along with their advantages and disadvantages.

Answer to Problem 1Q

Centralization and decentralization are two antitheses of one another. In centralization, the concentration of control lies with single authority, i.e., higher level and in decentralization, the control is disseminated to lower levels of the organization.

Explanation of Solution

In centralization organization, the decision-making power lies with the highest level of authority in the organization. All the strategic and operational level decision are taken by high-level executives.

The advantages of centralization:

1. A stringent control can be exercised over the organization.
2. It helps in implementing the decisions quickly.

The disadvantages of centralization:

1. All the burden lies on the manager.
2. It leads to misuse of power.

In decentralization organization, the decision-making power is spread throughout the organization. The authority and responsibility are given to the lower level managers to manage their individual units.

The advantages of decentralization:

1. It helps in reducing the burden on top executives.
2. It promotes motivation among the lower levels of management.

The disadvantages of decentralization:

1. It leads to overlapping of activities as managers in multiple areas perform the same function.
2. Costlier and riskier decisions might be taken without keeping in loop the higher level of management.