Advantages of centralization.

• Decisions can be coordinated more easily, and management has better control over decisions.
• Goal congruence. Decisions taken centrally should are based on overall objectives, whereas decentralized decisions may be influenced by short-term or local objectives of the people making the decisions.
• Standardization. For example, in any country McDonald’s customers expect to find standard menus and pricing. If managers were allowed to take decisions about changing menus or prices, this could undermine the business model.
• Resource allocation. Centralized decision making allows resource usage to be coordinated effectively between different functions and divisions, based on overall corporate objectives.
• Economies of scale. Companies might be able to get bulk discounts if they coordinate all their purchasing requirements and make a single order.
• Quick decision making. When a quick decision is required in response to a crisis, it may not be practical to involve local managers.                                                                                                                                                                           (Any 3)

Disadvantages of centralization.

• Reduced morale and job satisfaction. Local managers and divisional staff may be frustrated at their inability to take decisions, and this could reduce their job satisfaction and motivation.
• The fact that senior managers take all the decisions and do not delegate any could also increase the pressure and stress on senior managers.
• Limited opportunities. If junior managers are not given any opportunities for decision making this could hinder their career development, by preventing them from gaining experience which could be useful in more senior management positions.
• Imperfect information. Local managers may have greater knowledge about operational activities or local market conditions than senior management or head office staff. Therefore, senior management may have to delegate some decisions, or else risk damaging the quality of decisions taken due to their imperfect information.
• Communication time. Although centralisation can be useful for making rapid decisions( eg in a crisis,) it may take longer for decisions taken centrally to be communicated to different divisions and functions than if the decisions had been taken locally.                                                                                                                                                                                (Any 2)

i) To improve local decision making: An organization may decide to decentralize its activities if it desires to improve decision making at the branch or local levels. The emphasis may be on the fact that local managers are in close touch with the day-to-day operations and can make more informed and speedier decisions.

ii) Concentrate on strategic decisions: An organization may decentralize its activities if it intends to relieve central management from divisional activities to enable them concentrate on more strategic decisions affecting the organization.

iii) To improve communications: By decentralizing its activities the organization reduces response time with communication flow at the local level so that actions be taken more swiftly.

iv) To motivate branch managers: An organization that decides to decentralize its activities may do so with the aim of motivating managers at the divisional and branch levels to feel that they are part of the decision making machinery in the organization hence increasing their motivation.

v) To develop skills: An organization may decentralize its activities if it intends to develop managerial ability at the divisional or lower levels because managers at the lower level will have the opportunity to make challenging decisions that previously may be made by those at headquarters.

vi) To increase competitiveness: An organization may use decentralization as a strategy to increase its competitiveness especially if it is serving a diversified and wider market.

vii) To allow participation: Organizations may use decentralization as a way to allow employees to be involved in decisions that affect them and their work.                                                                                                                                               (Any 5)