Centralized Control Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Centralized control, in the context of organizations, means control exercised by a central authority such as top management. Contrary to centralized control, we have the concept of decentralized control where the function of control is delegated to lower levels of management.

In reality, there is no absolute centralized or decentralized control. Having either could be unworkable. Absolute centralized control would keep all decisions related to organizational matters in the hands of the top management, hindering effective functioning of an organization. Extreme decentralization of control, on the other hand, would disperse the decision-making authority within the organization, leaving nothing in the hands of top management. Such a situation would lead to utter chaos as the different units of an organization could work at cross-purposes, each of them not knowing where the other is headed. In practice, therefore, organizations have a combination of centralized and decentralized control.

Organizations need to decide on their optimum level of centralization and decentralization of decision-making authority. Larger organizations would tend to have a higher level of decentralization as such a pattern could facilitate quicker decision making and better responsiveness to the external environment. Older organizations, too, could have a higher level of decentralization as managers have gained enough experience for handling decision-making authority. An organization that has managers of higher-level competence can practice a higher level of decentralization as it has enough confidence to let lower-level managers deal with decision making. Organizations that have managers who have yet to gain the requisite level of competence may have to wait to decentralize the authority for decision making to lower levels.

Controlling is an essential function of management along with planning, organizing, and leading. Controls perform the useful function of ensuring that performance in an organization conforms to the standards so that the objectives of the organization can be achieved. In practice, controls operate through control systems that include rules and regulations, standards, recruitment and selection procedures, and training and development. There are several methods of control that include financial and accounting controls such as budgeting and financial analysis, and physical controls like production control and quality control, and newer methods such as activity-based costing and balanced scorecards.

Any control system operates in the form of a control cycle. This control cycle includes the setting of standards of performance, measurement of performance, comparison of actual performance with standards, and taking corrective action if needed. This is a continuous process and hence called the control cycle.

Centralized and decentralized control has relevance to other aspects of an organization apart from its structure and systems. For instance, information systems within organizations are also designed keeping in view the need for centralization and decentralization of information processing. System design has to deal with the issue of control structure. A centralized information system would thus be a system where information processing is provided by a central facility, while in a decentralized information system such processing would be distributed to various parts of the organization.

Another frequent reference to centralized and decentralized control is found in the case of organizations such as the military, particularly the air force. Centralized control in the context of an air force would mean that the authority to carry out air operations is vested in the hands of a central authority such as an air commodore who provides detailed step-by-step instructions that are to be followed by dispersed air force units. On the contrary, under decentralized control, the authority of decision making related to air operations would be delegated to the front-line airmen on the assumption that they would be best equipped to understand the situation at hand.

Multinational Corporations

Centralized and decentralized control issues also arise in the case of organizations that operate globally. These issues pertain to questions such as: To what extent will the authority for decision making relating to various departments and functions in the organization be centralized at the headquarters or decentralized to the level of subsidiaries? An example of such an issue is that of human resource (HR) management within multinational corporations. From the perspective of headquarters, decentralization may lead to loss of control over subsidiaries while centralization affords economy of operations. From the subsidiaries’ view, centralization at the level of headquarters may stifle initiative, creativity, and innovation. Each corporation has to evolve its own unique balance of centralization and decentralization with regard to its HR management policies depending on its strategies. With the advent of Web-based HR applications, it is now possible to centralize payroll, timesheet administration, performance appraisals, annual leave applications, and virtually every other aspect of HR administration. In a situation where operations are spread all over the world, the availability of the internet is a big benefit to multinational corporations.

The debate over the comparative merits of centralization and decentralization of control as well as some other dimensions of organizations, such as power, authority, decisions, and functions is ongoing and inconclusive. Ultimately, it must be a choice somewhere between the pressures on the organization to innovate or economize.

Bibliography:

Richard L. Daft, Organization Theory and Design (South-Western Thompson Learning, 2004);
Don Hellriegel, Susan E. Jackson, and John W. Slocum, Jr., Management: A Competency-based Approach (South-Western Thompson Learning, 2005);
Richard M. Hodgetts, Fred Luthans, and Jonathan Doh, International Management: Culture, Strategy and Behavior (McGraw-Hill Irwin, 2006);
Carl A. Rodrigues, “Headquarters–Foreign Subsidiary Control Relationships: Three Conceptual Frameworks,” Empowerment in Organizations (v.3/3, 1995).

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