The Anatomy of Organization: Centralization and decentralization

Our examination of the process of composite decision, and particularly of the methods and functions of review in an organization, casts considerable light on the way in which decisional processes can best be distributed through the organization, and on the relative advantages and disadvantages in centralizing the processes of decision.

What has already been said with respect to this issue? In Chapter VII it was pointed out that the specialization and centralization of decisionmaking serves three purposes: it secures coordination, expertise, and responsibility. In Chapter III some pragmatic tests were suggested for arriving at a division of function between legislator and administrator. In Chapter VIII, the relation between centralization of decisions and the problems of communication was explored. In Chapter X, it was seen that a need for centralization sometimes arises from the faulty institutional identifications of the members of an organization. In the present chapter, it was urged that the capabilities of the members of an organization would be one determinant of the possible degree of decentralization. Are there additional considerations, beyond those already mentioned, that should carry weight in the allocation of decisions?

At the outset, one important distinction must be clearly understood. There are two very different aspects to centralization. On the one hand, decision-making powers may be centralized by using general rules to limit the discretion of the subordinate. On the other hand, decision-making powers may be centralized by taking out of the hands of the subordinate the actual decision-making function. Both processes may be designated as “cen- tralization” because their result is to take out of the hands of the subordinate the actual weighing of competing considerations and to require that he accept the conclusions reached by other members of the organization.

The very close relationship between the manner in which the function of review is exercised, and the degree of centralization or decentralization should also be pointed out. This concept may be very useful as applied to those very important decisions where an appellate procedure is necessary to conserve individual rights or democratic responsibility. Under ordinary circumstances, however, the function of correcting the decisional processes of the subordinate which lead to wrong decisions is more important than the function of correcting wrong decisions. As the resources of the subordinate for making correct decisions are strengthened, decentralization becomes increasingly possible. Hence, review can have three consequences: (1) if it is used to correct individual decisions, it leads to centralization, and an actual transfer of the decision-making function; (2) if it is used to discover where the subordinate needs additional guidance, it leads to centralization through the promulgation of more and more complete rules and regulations limiting the subordinate’s discretion; (3) if it is used to discover where the subordinate’s own resources need to be strengthened, it leads to decentralization. All three elements can be, and usually are, combined, in varying proportions.

But why should administration aim at decentralization? All of our analysis to this point has emphasized the important functions which the centralization of decision-making performs. Nevertheless, we are warned against a naive acceptance of the advantages of centralization by the distrust which careful students of administration express for it. Sir Charles Harris, for example, has this to say:

If I appear before you as a thoroughgoing advocate of decentralization, it is as a convert to the faith in middle age …  At the beginning of my service I was greatly impressed by the lack of general knowledge and grasp of central principle displayed in the local decisions and actions that came under my notice. For years the conviction grew upon me that a larger measure of active control from the centre would conduce to both efficiency and economy of administration; and today, if I were to confine my view to particular details and to immediate results, I should still feel on that point no possible doubt whatever. It is when one falls back to Capability Brown’s view-point, and tries to see the wood as well as the trees, that the certainty disappears.

. . . Simple centralization drives up the functions of decision and authorization to the top centre, it leaves action, when decided upon, to be carried out by the subordinate authority.

Don’t cut down the discretion of the man below, or his class, by requiring submission to higher authority in the future, because he has made a mistake. Teach him and try him again; but if he is unteachable, shunt him.6

Almost any person, unless he recognizes the long-term consequences, feels “safer” if he makes decisions himself instead of delegating them to a subordinate. The superior rationalizes this centralization on a variety of grounds: he is more highly skilled or trained than the subordinate; if he makes the decision, he can be certain that it is decided as he would want it. What he does not always realize is that by concentrating the entire function of decision in himself, he is multiplying his work, and making the subordinate superfluous.

There are two principal reasons for decentralizing decisions even in cases where the superior is more highly trained than the subordinate. The first harks back to the distinction in Chapter IX between efficiency and adequacy. It is not enough to take into consideration the accuracy of the decision; its cost must be weighed as well. The superior is presumably a higher paid individual than the subordinate. His time must be conserved for the more important aspects of the work of the organization. If it is necessary, in order that he may make a particular decision, that he sacrifice time which should be devoted to more important decisions, the greater accuracy secured for the former may be bought at too high a price.

The second reason why decentralization is often preferable to cen- tralization is that the referral of a decision upward in the hierarchy intro- duces new money and time costs into the decision-making process. Against any advantages of accuracy when the decision is made at the center must be balanced the cost of duplicating the decisional process, together with the cost of communicating the decisions.

To emphasize the costs of uneconomic standards of review, we cannot do better than quote an example cited by Ian Hamilton from his personal experience:

In 1896 I was Deputy Quartermaster-General at Simla; then, perhaps still, one of the hardest worked billets in Asia. After a long office day I used to get back home to dinner pursued by a pile of files three to four feet high. The Quartermaster-General, my boss, was a clever, delightful work-glutton. So we sweated and ran together for a while a neck and neck race with our piles of files, but I was the younger and he was the first to be ordered off by the doctors to Europe. Then I, at the age of forty-three, stepped into the shoes and became officiating Quartermaster- General in India. Unluckily, the Government at that moment was in a very stingy mood. They refused to provide pay to fill the post I was vacating and Sir George White, the Commander-in- Chief, asked me to duplicate myself and do the double work. My heart sank, but there was nothing for it but to have a try. How was that? Because, when a question came up from one of the Departments I had formerly been forced to compose a long minute upon it, explaining the case, putting my own views, and endeavoring to persuade the Quartermaster’ General to accept them. He was a highly conscientious man and if he differed from me he liked to put on record his reasons—several pages of reasons. Or, if he agreed with me, still he liked to agree in his own words and to “put them on record.” Now, when I became Quartermaster-Gen’ eral and Deputy-Quartermaster General rolled into one I studied the case as formerly, but there my work ended: I had not to persuade my own subordinates: I had no superior except the Commander-in-Chief, who was delighted to be left alone: I just gave an order—quite a simple matter unless a man’s afraid: “Yes,” I said, or “No!”?

There is an additional objection to centralization that goes beyond those already considered. It has been assumed thus far that, given ample time, the superior could make more accurate decisions than the subordinate. This will be true, however, only if the information upon which the decision is to be based is equally accessible to both. When decisions must be made against a deadline, or when the organization is characterized by geographical dispersion, this may be far from the case. The “facts of the case” may be directly present to the subordinate, but highly difficult to communicate to the superior. The insulation of the higher levels of the administrative hierarchy from the world of fact known at first hand by the lower levels is a familiar administrative phenomenon.

Centralization is sometimes urged as a necessary concomitant of the specialization of work. If work is specialized, then procedures must be introduced to secure coordination among the members of the group; and among the most powerful of coordinative procedures is the centralization of decisions. This is true; but in accepting this conclusion we must not blind ourselves to the very real disadvantages and costs that accompany specialization.

Interpersonal coordination involves communication of a plan. Complex and powerful as are the devices which can be used for such coordination, their effectiveness is in no way comparable to the coordinating power of the individual human nervous system. When the elements of the plan can be reduced to diagrams and maps, as in the case of a design for a ship or a bridge, interpersonal coordination can reach even minute detail. But the coordinative mechanisms of a skilled pianist, or of an engineer bringing all his skill and knowledge to bear on a problem of design, are far more intricate.

Successful use of the device of specialization to increase efficiency implies either that no coordination is required among the specialized segments of the complete task, or that this coordination can be achieved with the available techniques of interpersonal coordination. If neither of these conditions is fulfilled, then specialization must be sacrificed in order to retain the use of the individual brain as the coordinating mechanism. It is not very easy to thread a needle if one person holds the thread and another the needle. Here the task is to get thread and needle to the same place, and interpersonal coordination accomplishes this much less successfully than the coordination of the movements of the two hands by the human nervous system.

The quotation in which the procedure for designing a battleship was described8 is another case in point. A careful analysis of the procedure reveals that there were involved in it not only the experts on various aspects of battleship design, but also a group of functionaries who might be described as “expert jacks-of-all-trades in battleship design.” The Director of Naval Construction, and not the functional experts, lays down the general lines of the ship. To repeat:

Thereupon the Director of Naval Construction, acting under and in consultation with the Controller, formulates provisional schemes outlining the kind of ship desired, together with forecasts of the size and cost involved by the different arrangements. To do this he and his officers must have a good general knowledge—in itself only attainable by close relations with those in charge of these matters—of the latest develop- ments and ideas in regard to a great range of subjects—gunnery, torpedo, engineering, armour, fire-control, navigation, signalling, accommodation, and so on—in order to be reasonably sure that the provision included in his schemes is such as is likely to satisfy the experts in all these subjects, when the time for active cooperation arrives.9

Only after the “jack-of-all-trades” has done his job are the experts called in for their suggestions. Next, a technique of interpersonal coordination, the conference, is used to reconcile the competing claims of experts. Finally, the plan is turned over again to the non-specialist for authorization.

We may conclude, then, that some measure of centralization is indis- pensable to secure the advantages of organization: coordination, expertise, and responsibility. On the other hand, the costs of centralization must not be forgotten. It may place in the hands of highly paid personnel decisions which do not deserve their attention. It may lead to a duplication of function which makes the subordinate superfluous. Facilities for communication must be available, sometimes at considerable cost. The information needed for a correct decision may be available only to the subordinate. Finally, centralization leaves idle and unused the powerful coordinative capacity of the human nervous system, and substitutes for it an interpersonal coordinative mechanism. These are the considerations which must be weighed in determining the degree to which decisions should be centralized or decentralized.

Source: Simon Herbert A. (1997), Administrative Behavior, Free Press; Subsequent edition.

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