(8) Centralisation and Decentralisation:
According to this principle, the superiors should adopt effective centralisation instead of complete centralisation and complete decentralisation. By effective centralisation, Fayol does not mean that authority should be completely centralised.
He feels that the superiors should keep the authority of taking important decisions in their own hands, while the authority to take daily decisions and decisions of less importance should be delegated to the subordinates.
The ratio of centralisation and decentralisation can differ in different situations. For example, it is advantageous to have more centralisation in a small business unit and more decentralisation in a big business unit.
For example, the decisions in respect of determining the objectives and policies, expansion of business, etc. should remain in the hands of the superiors. On the other hand, authority for the purchase of raw material, granting leave to the employees, etc. should be delegated to the subordinates.
Positive Effect
(i) Decrease in the workload of superiors
(ii) Better and quick decisions
(iii) Increase in the encouragement to the subordinates
Violating Effect
(i) Unnecessary increase in the workload of the superiors in case of centralisation and of the subordinates in case of decentralisation
(ii) Impatient and wrong decisions by the superiors in case of complete centralisation and weak decisions by the subordinates in case of complete decentralisation
(iii) Decline in the encouragement to subordinates in case of complete centralisation