Centralization in Management: Definition, Meaning, and Advantages/Disadvantages

What is Centralization of Authority?

Centralization is the process of systematically retaining decision-making power at the highest level of management. Under it, the top-level management makes autonomous decisions.

During a centralized organization, considerable authority and accountability remain at the highest of the hierarchy. The remaining parties of the organization receive the command from the top manager and follow.

In the centralization of authority, only a couple of members have the decision-making authority or the sole head office makes the managerial decisions and therefore the rest branches follow the direction provided by the headquarters.

Centralization of authority is acceptable in small business organizations where tasks are few or a single manager is in a position to handle easily all the organizational activities.

Centralization of authority is the reservation of deciding authority at the top level. It decreases the role of subordinates and therefore the top level assumes full authority in operating business exercises.

• Ricky W. Griffin – Centralization is the process of systematically retaining power and authority in the hands of higher-level managers.
• Robbins and Coulter – Centralization is the degree to which decision-making is concentrated at a single point in the organization.
• Ivancevich, Donnelly, and Gibson – Centralization refers to the location of decision-making authority in the hierarchy of the organization.

Centralization helps a manager to stay in tune with all the activities of the business and facilitates quicker decisions. This technique is very fit for small organizations doing business in a competing environment.

However, the expansion of the dimensions of business creates complexities in business activities, and in such a situation centralization becomes ineffective. Top management must form departments and branches on the idea of the character of labor and decision-making power should be transferred to the departmental heads.

Related: Decentralization in Management: Definition, Meaning, and Pros/Cons

Advantages of Centralization of Authority

Centralization and decentralization both are crucial concepts for running an efficient business. Let’s take a look into the reasons why business organizations adopt the centralized organizational structure.

Facilitates Unified Decisions

In centralization, all decisions are made by the top-level manager. it’s not necessary to consult and take the consent of subordinates while making a choice. The subordinates perform activities on the idea of instructions that facilitate the maintenance of uniformity and consistency in performance.

Simplifies Structure

In a centralized organization, the structure tends to be simple and clear. It involves two levels managerial and operating levels. The managerial level is liable for deciding whereas the operating level is liable for execution.

Related: What is Line Organization? Definition, and Pros/Cons

Facilitates Quicker Decisions

Centralization aids in quicker decisions as one manager takes all decisions. Managers can take suggestions and guidance from experts and professionals, but the ultimate decision is taken by him. A fast decision is important for business success in a competitive environment.

Economy In Operation

In a centralized organization, many levels and positions of management are reduced. It minimizes the overhead cost of the organization. It also helps the effective utilization of skilled, qualified, and experienced affiliates.

Integrate Operation

Centralization helps to integrate and unify all the operations of the organization. The top-level manager maintains close supervision of the subordinates and their functions. On the idea of requirement, a manager takes quick decisions to regulate the activities of employees.

Suitable For Small Firms

Centralization is very appropriate in small business firms that have fewer branches. In such organizations, managers can personally take care of the general activities of the organization.

Also Read: What is Authority Delegation? Definition, Features, Barriers, and Pros/Cons

Disadvantages of Centralization of Authority

Centralization is merely appropriate in small size of organizations, but when the business activities are growing, there’s difficult to handle all the activities by one manager. Some drawbacks of centralization are as follows:

Unsuitable For Large Organizations

Centralization is impractical in large business organizations having various branches in several locations. it’s difficult to speak managerial decisions to different operating levels within the management hierarchy. Top managers can’t effectively manage and control all the activities of the company.

Manager is Overburdened

Top managers are overburdened authoritatively and responsible while managing all activities of the organization. He can’t devote sufficient time to other major activities. This results in a decreased working efficiency of the organization.

Possibility of Misuse of Power

Centralization of authority at the highest level may end in underutilization of power. Top managers may exercise powers on the idea of their judgment in personam. this might cause misuse of authority if the managers lack proper skills.

Low Morale and Motivation

Middle and lower-level managers may feel uncomfortable while doing assigned tasks. they do not have the specified authority to affect problems effectively. they are not getting an opportunity to point out and develop their potential. the shortage of motivation tends to affect the morale of subordinates.

Lack of Environmental Adaptation

The business environment is dynamic, it changes consistently with the time and situation. In business, it’s essential to form quick decisions to resolve the issues of concerned departments or branches. Centralization isn’t applicable during a dynamic environment as flexibility won’t come promptly from the executive level.

In centralization, top-level managers devote maximum time to creating routine decisions. Therefore, they will not devote any longer to non-programmed decisions. this may have a negative impact on the long-term performance of the organization.

Summing up… thus, centralization means decision-making authority targeting the top-level manager. it’s appropriate in small and inappropriate in a large organizations. But today’s business environment focuses on employee participation in decisions. that creates a sense of importance within the organization to subordinates where they will show their potential. Thus, depending upon the character and size of the organization effective utilization of centralized authority is important.

Difference Between Centralization and Decentralization of Authority

Centralization of authority involves the concentration of decision-making power at the top level of management. The top-level managers hold the majority of authority and make most of the decisions, while lower-level employees follow their directives. It works well in small organizations with fewer tasks and a competitive environment.

On the other hand, decentralization of authority involves delegating decision-making power to lower-level managers based on their responsibilities. It promotes motivation, skill development, and better decision-making at various levels. Decentralization is suitable for large organizations with multiple branches and dynamic environments. It fosters autonomy, quicker responses, and better coordination among departments.