What is the difference between Centralization and Decentralization?

Centralization is an organized structure that depends on one person to make all decisions and give direction for an organization. Small businesses and self-owned companies use this concept because the owner is usually responsible for all operations of the business.

Decentralized organizations depend on the team environment with different levels within the business, with several individuals accountable for the decision-making process. However, specific individuals at each level could have some autonomy to make decisions. Both forms of organization have their good and bad points. With one person calling the shots, the objectives are pre-set for managers and employees to follow, and each person understands what is expected of them.

When you have several people managing the expertise of these individuals can be put to good use to handle the variety of issues that could ensue. One person making all the decisions can cause slow-moving decision making, whereas multiple decision-makers can face difficulties getting everyone to agree.

Centralized and decentralized can refer to many different things, including inventory and waste management, but these two terms are mainly used to describe organizations and governments. Things that are centralized tend to work in a hierarchy system. Decentralized is more democratic, for the group or government makes any decisions together. In a centralized organization or government, any decisions are made by just one person. Centralized organizations and governments are more likely to occur in those that are small, where decentralized is likely to occur in a larger organization and a larger government. Another difference between them is in regards to predictability. Centralized are often more predictable than decentralized.