Centralization vs. Decentralization

Both centralization and decentralization relate to the organization of a given entity either in macroeconomic or microeconomic terms.

Centralization is a form of organizational structure where solely one unit is authorized to make autonomous decisions, set strategy, determine goals and objectives.

From the companies' management perspective, centralization occurs, when the parent company takes the functions and powers back from the subsidiaries and put them in its central units.

Centralization can be also analyzed from the macroeconomic perspective. Centralized state, is the state, which can ensure uniformity of policy within its borders, but which ignores the specify needs of individual regions.

Decentralization relates to a transfer of power from a high level of government to a lower one. It is a form of organizational structure where several units are authorized to make autonomous decisions. As the result the decision is often made quicker and by more qualified personnel than in centralized systems. Decentralization allows the new unit to operate as an independent entity which increase flexibility and accuracy of activities.

From macroeconomic perspective decentralization involves the transfer of political, administrative and fiscal authority from the central government to the regional authorities and the local governments. Decentralized state, is the state, that sacrifices the uniformity of its policies to meet the particular needs of each region.

So, in summary:

Bo the centralization and decentralization relate to the decision making organization of the unit. In the first case only central unit is eligible to take the autonomous decision while in the second case, the decision making process can be taken in several subunits. As the result the centralized units have a rather hierarchical management system, while decentralized system is characterized by rather horizontal management system.