Centralization refers to the process in which activities involving planning and decision-making within an organization. In a centralized organization, the decision-making powers are retained in the head office, and all other offices receive commands from the main office.
- A clear chain of command– A centralized organization benefits from a clear chain of command because every person within the organization knows who to report to. Junior employees also know who to approach whenever they have concerns about the organization. On the other hand, senior executives follow a clear plan of delegating authority to employees who excel in specific functions.
- Achieving uniformity in action- Uniformity of action is possible when decision-making authority is centralized. The decisions taken at the top will be implemented at every level. There may be more than one unit under the same management and it may be desired to have the same types of policies and procedures.
- Quick implementation of decisions-In a centralized organization, decisions are made by a small group of people and then communicated to the lower-level managers. The involvement of only a few people makes the decision-making process more efficient since they can discuss the details of each decision in one meeting. The decisions are then communicated to the lower levels of the organization for implementation.
- Improved quality of work- The standardized procedures and better supervision in a centralized organization result in improved quality of work. There are supervisors in each department who ensure that the outputs are uniform and of high quality. The use of advanced equipment reduces potential wastage from manual work and also helps guarantee high-quality work.
- Handling Emergencies- Under uncertain business conditions there is a need to take emergency decisions. Sometimes the existence of small- scale units is endangered if timely actions are not taken. The centralized authority will enable quick and timely decisions from short-term as well long-term perspective.
- Bureaucratic leadership- Centralized management resembles a dictatorial form of leadership where employees are only expected to deliver results according to what the top executives assigned them. Employees are unable to contribute to the decision-making process of the organization, and they are merely implementers of decisions made at a higher level.
- Distance from Customers- The customers do not come into contact with policy-makers. They meet only those officials who do not have the powers to take decisions. Moreover, one person cannot meet and know the reactions of customers regarding products and service.
- Delays in work- Centralization results in delays in work as records are sent to and from the head office. Employees rely on the information communicated to them from the top, and there will be a loss in man-hours if there are delays in relaying the records. It means that the employees will be less productive if they need to wait long periods to get guidance on their next projects.
- No Scope for Specialization- Centralization does not offer any scope for specialization. All decisions are taken by one person and he may not be a specialist in all the areas. In the present competitive world, there is a need for employing the services of specialists. The specialists will be able to introduce new things in their fields and they may improve the performance of the enterprise.
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