These days, two kinds of organizational structure are discussed and these terms are centralization and decentralization. Centralization of power means the authority of making decision and planning are solely in the hands of top administration however in Decentralization, the same power has been given to middle or low level management by top management. Federalism is a political concept and is highly used in organizational structure as well. This debate is never ending process as we can’t prove that which one is better than other. In these article significant contrasts are explained that exists between these structures i.e. Centralization and Decentralization is clarified.

Centralization

Centralization is assumed to be a procedure where the power of decision making is there in some hands. All the critical decisions and activities at lower level, all activities and subjects at the smaller level are liable to the endorsement of top administration. It can also be defined as a procedure by which the action of an association, especially those in regards to making decisions and planning, get to be focused inside of a specific area or keeping the majority of powers of making decisions inside of head office or centre of the association. As indicated by Allen, “Centralization” is the orderly and steady reservation of power at main issues in the association.

Decentralization

Decentralization is an efficient assignment of power at all levels of administration and in the majority of the association. In decentralization the main focus is that power is held by the top administration for taking significant decisions and confining strategies concerning the main focus. Rest of the power may be designated to the centre level and lower level of administration. Decentralization is the procedure of reallocating or dispersing powers, functions, individuals or things far from central area or authority.

Federalism

Federalism is a mixed or compound form of organizational structure. It combines the centre or federal powers with the decentralized sub-units in a single organizational structure.

Centralization vs. Decentralization vs. Federalism

Here are some contrasts that exist between these terms. They are:

Meaning

To maintain the authority and powers regarding making decision and planning, with the top administration, is called as Centralization.

The distribution of power, accountability and responsibility to the different administration levels, is called as Decentralization.

Federalism is a form of organizational setup in which there is division of powers between two levels of organization of equal status.

Flow of communication

In centralization, formal and vertical flow of communication is there.

In decentralization, informal or open and free flow of communication is there.

In federalism, flow of communication is through a proper chain.

Companies’ strategies

In centralization, companies’ strategies rely on upon managers holding say over what take places.

In decentralization, strategies of companies rely on upon managers having association and adaptability in decision making.

Decisions

In centralization, decisions are mostly slow and significant.

In decentralization, decisions are made faster and they are generally minor.

In federalism, decision making powers are given to the centre as well as sub-division of centre. Final decisions are taken with collaboration of both ideas.

Companies

In centralization, companies are usually large.

In decentralization, companies are generally scattered.

The companies adopting federalism are generally very large scale and have to operate their chain branches with help of federalism organizational structure.

Environment

In centralization, environment of organization is mostly stable.

In decentralization, environment of companies is mostly uncertain and complex.

In federalism, environment of companies is congenial and organized. There are HR-Human Resource departments that listens to the problems of employees. So, employees or human resource is taken utmost care of.

Lower level manager:

In centralization, lower-level managers are less able or skilled in decision making as compared to upper-level managers. They would prefer not to say anything in decisions made by upper level managers.

In decentralization, lower-level administrators are skilled and experienced in decision making and they want their presence in decision making.

In federalism, decision making power rests in the hands of lower-level and higher level managers alike. Decisions are taken by considering the view-points of both.

Power

In centralization, power of making decisions is in the hands of higher authority of company.

In decentralization, power of decision making is in hand of multiple persons.

In federalism, decision making power is in collective hands. Final decision is taken by top level management after considering suggestions from all.

Best for

Centralization is best for small companies or organizations.

Decentralization is best for large companies or organizations.

Federalism is best for very large organizations.

Advantage

The main advantage of centralization is that there is accurate leadership and coordination in company.

The main advantage of decentralization is that the responsibilities and burden is shared among multiple persons.

One advantage of federalism is that it promotes policy innovation and participation of all. It accommodates diversity of opinion. Individuals, groups and other sub-divisions are encouraged to actively participate and help shape organizational policy.

Purpose

The main purpose of centralization is to control inadequacy of the organization.

There is a considerable control in the association due to decentralization.

Conclusion

From the article we conclude that all powers and authorities are in the hand of top management in centralization while powers are given to multiple persons in decentralization. In centralization, companies are usually large and their decisions are significant and they use formal communication while in decentralization companies are scattered, their decisions are minor and they use informal communication.  Low level managers are less skilled in centralization while they are more able and skilled in decentralization. In centralization, environment is stable while in other it is complex. The main advantage of centralization is that proper coordination and leadership is there while an advantage of other is that burden is shared among different people. Federalism is a compound form of organizational structure that divides the powers among sub-divisions and allow their participation in the decision making process.