Decentralization refers to the pushing down of authority and power of decision-making to lowest levels of organization.
It expresses great ix dispersion of authority. On the other hand, centralization refers to concentration of authority in one or two persons at the top of the hierarchy. Delegation of work helps in establishing decentralization in an organization.
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Structural pattern of the organization as well as the outlook of top management in distributing planning duties decides the degree of decentralization in any organization. In decentralization, delegation of power and authority from higher to lower levels of the organization is often accomplished by the creation of small, self-contained organizational units/sections/departments.
The greater the amount of authority delegated throughout the organization, the more decentralized the organization is. However, decentralization and delegation are not the same. Decentralization is more than delegation.
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It reflects a philosophy of organization and management. A policy of decentralization affects all areas of management. In fact, an organizational structure cannot be maintained without the support of decentralization.
It requires careful selection of what decisions to be pushed down into the organization structure and what decisions to be held at the top level, preparing specific policy-making to guide decision-making, selection and training of people and adequate controls.
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The degree of decentralization in an organization varies from institution to institution. Concepts of centralization and decentralization are two extreme points concerning distribution of authority in the organizational structure. No institution can be either completely centralized or completely decentralized. Both of them need to be used in different degrees.
The extent of decentralization is mainly determined by the overall pattern of organizational structure. Usually, large institutions require more decentralization where as small institutions are centralized.