What is Centralization?
Centralization is that the process of systematically retaining decision-making power at the highest level of management. Top-level management makes autonomous decisions. 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 and one manager is in a position to handle easily all the organizational activities.
In 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 of 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-tuned with all the activities of the business and facilitates quicker decisions. This technique is very fit in small organizations doing business during a competing environment. However, 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.
Advantages of Centralization
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 structure?
#1 Facilitates Unified Decisions
In centralization, all decisions make 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.
#2 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.
#3 Facilitates Quicker Decisions
Centralization aids 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 during a competitive environment.
#4 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.
#5 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.
#6 Suitable For Small Firms
Centralization is very appropriate in small business firms that that has fewer branches. In such organizations, managers can personally take care of the general activities of the organization.
Disadvantages of Centralization
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:
#1 Unsuitable For Large Organization
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.
#2 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 decrease working efficiency of the organization.
#3 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.
#4 Low Morale and Motivation
Middle and lower-level managers may feel uncomfortable while doing assigned tasks. they are doing not have the specified authority to affect problems effectively. they are doing not get an opportunity to point out and develop their potentiality. the shortage of motivation tends to affect the morale of subordinates.
#5 Lack of Environmental Adaptation
The business environment is dynamic, it changes consistent 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.
#6 Inappropriate For Routine Decisions
In centralization, top-level managers devote maximum time to creating routine decisions. Therefore, they will not devote longer to non-programmed decisions. this may have a negative impact on the long-term performance of the organization.
Thus, centralization means decision-making authority targeting the top-level manager. it’s appropriate in small and inappropriate during a large organization. But today’s business environment focuses on employee participation in deciding. that creates a sense of importance within the organization to subordinates where they will show their potentiality. Thus, depending upon the character and size of the organization effective utilization of centralized authority is important.