Moreover , decentralization is a matter of degree, since all organizations are decentralized to some extent out of necessity. At one extreme, a strongly decentralized organization is one in which even the lowest-level managers and employees are empowered to make decisions. At the other extreme, in a strongly decentralized organization, lower-level managers have little freedom to make decisions. On the other hand, in a centralized organization, the decisions are made by top executives or on the basis of pre-set policies.
These decisions or policies are then enforced through several tiers of the organization after gradually broadening the span of control until it reaches the bottom tier. Centralization is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. According to John R. Schermerhorn(2002) , “Centralization” is the systematic and consistent reservation of authority at central points in the organization.
The difference between a centralized and a decentralized system of organization is that in a centralized structure all the decision making and authority are focused on the top tier of management. These few people are the ones that dictate company policy and make all the crucial decisions. A decentralized system, on the other hand, delegates authority throughout the organization and to all levels of management. Advantages of centralization include an organization’s ability to be able to keep a tight grip on all aspects of the business.