Centralization: Meaning, Factors, Advantages, Disadvantages, and Conclusion (2024)

Meaning of Centralization

Centralization refers to the organization structure in which power for decision making lies only with one belonging to top management level. It is simply a process in which key activities such as planning, framing policies and strategies are concentrated in few hands of organization. The top leader gives command to all its subordinates who follows them and carry out each activity as per the directions given to them. The concept of centralization is more prevalent and useful for small organizations lacking financial resources. There is an only one manager who himself commands all functioning of business single-handedly.

Centralization is more likely applicable in organization where the operations are limited such it is possible to devote personal attention to every activity. However, as the business grows and its number of operations rises, it becomes difficult to follow centralization. The need for decentralization of authority rises with the increase in number of operations thereby keeping authority only for crucial decisions.

Factors Affecting the Centralization

Various factors affecting the process of centralization are as discussed below: –

Nature of organization

The nature of business organization influences the centralization concept to a great extent. It can be more efficiently implemented in sole proprietorship business or a partnership entity having a limited number of employees. The number of operations is less in these organizations which can be easily supervised by top management team. Whereas in private or public limited companies having a large number of employees and operations, implementation of centralization becomes a quite difficult task.

Organization size

Centralization of organization is influenced by its size and degree of operations. The small enterprises operating on a small scale can be efficiently managed by top management thereby concentrating power in few hands. Following a centralization system becomes difficult in case of big organization doing activities at a larger level.

Nature of work

The centralization can be easily applied to manage business activities that do not require much specialization or expertise. Whereas, all such operations which require specialization needs personal attention thereby resulting in passing of authority to lower level.

Efficiency of employees

Management will prefer centralization of authority in case if employees are not efficient. When workers lack skills then they can’t take up the responsibility and accountability of activities. In such scenario officials at top level holds the power of decision making and provide directions to subordinates.

Ability of delegation

The organization structure is greatly influenced by the delegation ability of managers. Capability of management to delegate responsibilities and accountability of work with their subordinates determine ability to follow centralization.

Advantages of Centralization

The benefits of centralization process for an organization are as discussed in points below: –

Standardize procedures and systems

The process of centralization enables organization in bringing standardization in its working procedures and systems. All plans and polices are framed at top level and directed to be followed by every subordinate in same manner. It results in smooth functioning of business leading to consistency in day-to-day working. The overall quality of customer service also gets enhanced when standard polices are followed.

Cost efficient

A centralized decision-making process proves to be cost-efficient for an organization. It enables in saving large expenses to be incurred on office and administrative expenses. When the centralized process is followed, there is no need of hiring highly experienced personnel and experts for monitoring of each level. Companies are able to enjoy economies of scale if there is a centralized buying and selling of goods in bulk quantities resulting in large discounts.

Better command

It helps in establishing a better command by management team over the operations of business enterprise. Managers holds an authority to control their subordinates and subordinates are also well aware that whom to follow. Officials in management team are well-versed with strengths and weaknesses of subordinates so that accordingly their actions can be controlled.

Gives uniformity of action

Centralization process plays an effective role in bringing uniformity of actions throughout the organization. When power to make plans and decisions lies only with few hands then same methods or techniques are followed. The same type of office equipments are used and same office executive supervises the work which leads to uniformity.

Focus on vision

An organization is able to pay more attention on its vision when there is centralized process of decision making. Managers at top level clearly defines and understand the mission and objectives of business. They align every organizational resources, strategies, activities and subordinates in line with vision thereby facilitating the achievement of goals.

Coordination of activities

Organization attains better coordination when decision making is done by top management. Framing of uniform policy by managers to be followed by subordinates across organization at distinct levels ensure unity and integration of their actions. Centralized management in this way coordinates the work of various departments together.

Improve quality of work

Centralized management process facilitates organization in enhancing the quality level of their operations. When subordinates are directly accountable and answerable for their operations to supervisors, they consistently work on improving their quality level. It eventually minimizes the wastage of resources and raise efficiency level.

Disadvantages of Centralization

The process of centralization is not favorable for all type of business enterprises. It has some shortcomings which are described below: –

Delay in decision making

The centralization structure slows down the whole decision making of an organization. Every decision is taken by top management including the day-to-day operations of business. In absence of managerial staff, the subordinates do not have power to take immediate decisions. They need to wait for their supervisor directions which leads to delay in decision making.

No scope for specialization

The scope of specialization reduces in case of centralized management process in organization. A single person takes all decisions and same person can’t specialize in all activities alone. Therefore, the organization lacks specialized management and supervision when every decision is taken by top management level only.

Over burden on top management

It results in over burden on top management as they manage all activities of business. Even the responsibility of deciding day-to-day operations lies with them. Managers are unable to focus on growth and expansion of organization due to over burden of work on them.

Poor upward communication

There is very poor upward communication in organization where management is centralized. Subordinates are required to follow the instruction of their managers and less attention is paid on their suggestions and feedback. All this result in hinder the upward communication of business enterprise.

Bureaucratic leadership

The process of centralization depicts image of dictatorship style of leadership within the organization. All subordinates are strictly need to follow instructions of their supervisors and can’t take any decisions on their own. Any suggestions and ideas from workers are not welcomed by managers. In such scenarios, problem solving becomes a quite difficult task as decision maker and implementor are two distinct personalities.

Lacks adaptability to change

Centralized organizations lacks adaptability to change and remain stick to their conventional way of doing things. The top management is rigid to its old policies, method and techniques which becomes barrier to change. They are not ready to adopt modern methods or improvised practices for business growth.

Conclusion

In today’s time, the process of centralization is considered as a dominating or dictatorial practice. Employees working across the organization do not like to be ruled by someone. Instead, they are happier and more comfortable with such organization that value their suggestions, knowledge and skills. Employees are more likely to work as an associate of business where they participate in decision making.

However, the centralized management is also essential for organization in order to keep a hold over business operations and activities. It is more useful for businesses where employee’s lack required skills for proper decision-making and not self-disciplined.