Centralization is the structural element that actually describes the distribution of power in organizations. Power distributions are determined in advance of doing much else in organizations. For example, founders of organizations determine which decisions they will make and which will be made by those lower in the organizational echelon. Organizations in which all the important decisions are made by the head-quarters or general office are centralized; those in which many important decisions are delegated to lower-level managers are decentralized. The feature on the Challenger shows how a lack of centralization can have disastrous results.
The degree of centralization reflects what an organization thinks of its members. A high degree of centralization reflects an organization that feels its members need high degrees of control; decentralization implies that an organization feels its employees can govern themselves.
Two aspects of centralization are most obvious in organizational life. The first is where decisions are made and what kinds of decisions are allowed; the second is how those decisions are evaluated. Although evaluation is only one aspect of decision making, it is important enough in its own right to be singled out for attention. If all evaluation is done at the top, it does not matter whether decisions are made at lower levels. By definition, the organization is centralized.
Centralization and decentralization take a number of forms:
1. Autocracy. Decision making is highly centralized, and few decisions are made by lower-level personnel.
2. Collegial. Decision making is highly decentralized. Many decisions are made at lower levels without policy restrictions.
3. Centralized bureaucracy. Decisions are made by operating personnel at lower levels but follow a framework of restrictive policies, procedures, and rules. When problems are not covered by existing policy, they are referred to higher levels for decisions or policy development.
4. Decentralized bureaucracy. Decisions are made at lower levels within the framework of policies, but lower-level personnel have discretion on problems not covered by policies.
Centralization is associated with size and technology as well as with environmental factors faced by organizations. One might think that increased size results in high degrees of centralization. The research, though, supports just the opposite notion. Apparently increased size creates pressures to decentralize. Such pressure probably brings with it increased numbers of experts at lower levels who may demand more say in decision making and evaluation.
Technology is related to centralization in that when tasks have a high degree of clarity, predictability, and efficacy, they are assigned by directive and centralization is high. When tasks are low on these three factors, they are allocated by delegation and centralization is low.
The relationship of centralization to environmental conditions is not clear, possibly because environmental conditions are not specified in most existing research. A generalization we can make is that when environments change rapidly and it is critical to monitor them, decentralization is probably best; alternatively, when environments are stable, centralization is probably most effective. Centralization may also reflect the kind of society in which the organization exists. A society in which the majority of organizations are highly centralized is probably one in which its citizens have little say about their participation.