As the name suggests in a centralized form of organization, the power remains with a selected few who are the center or the core group of the company. Centralization is a concept where the decision-making authority is at the top of the hierarchy, and the rest of the company is entirely dependent on the central group that holds power in their hands.
Meaning of Centralisation
Centralization refers to bringing all things under a unified control where all the critical decision-making, planning strategies, and policies are taken only by the top level. It is considered a consistent and systematic concentration of power and authority in a company.
Centralization is one of the most common types of structures found in government, business organizations and management. It alludes to the concentration of authority at the apex level. As the responsibility and power are centralized, the role of a subordinate employee becomes diminished.
The rights vests with the top level and the junior employees have to follow the commands given by the senior managers and function as per their directive. The employees at the lower levels do not take part in the planning and decision-making process as their role is to follow orders.
Centralization is successful in small-scale organizations where operations are limited, and the owner or the top brass can devote considerable personal time and effort to the handling and management of the business.
Thus the implication of centralization is
- Reservation of decision-making at the highest level
- Reservation of operation at the lower level as per the directive of the higher level
- Reservation of operating power with mid-level managers
Features of centralization
The essential features of a centralization type of structure are as follows-
- It is best suited for small-sized organization although you will find the structure in government and management
- The centralization is implemented in cases where there is inadequate control over the organization
- The decision-making is a slow process, and the employees have to wait for instructions from top-level positions
- The power of authority is at the top, and the reservation and concentration of decision-making power lie with the top management.
- The middle and low-level management has very little to say in any process as they are only involved with the implementation process
- The leadership is strong and facilitates proper coordination
- The flow of communication is vertical or in simple terms, from top to bottom. The top brass pass orders to mid-level managers who in turn pass it down to low-level management
- There is no disagreement on any issue as the authority to handle such cases is only with leadership
- An essential feature of centralization is the consistent and systematic reservation of power and authority
- The centralization type of structure has minimal scope for flexibility as it is under the sole command of its owner or top executives with employees having nothing to do with planning and decisions, just implementation as per direction.
Examples of centralization
Some prime examples of centralized organizations are as follows
The military is considered one of the prime examples of centralization. The structure is fully hierarchical with authority passing from top to bottom. Just like an organization the top brass is involved with planning and decision making and the lower levels with implementing as per the command or orders.
The structure of a government is an excellent example if you are looking for a structure that resembles centralization. They too follow a hierarchical policy where the leader is the president, then is followed by the prime minister and then by cabinet ministers and so on.
By the time you arrive at the grass-root level, these are merely workers entrusted with the implementation of policies whereas the actual planning, process making and decision making rest with the top-level officials.
If a country is under dictatorship, then it means that one person is ruling it and that is the dictator himself. Just as a centralized structure has a central authority figure, in the case of dictatorship, the power and authority rest with the supreme leader and he is the dictator.
He commands, and the chain of command is followed, and everyone else accepts the decisions and start implementing them. If you want to stop the hierarchy, then stop the leader and the chain automatically breaks down.
4. Traditional Indian home
If you look at the traditional Indian home, you will find that the people living there follow a centralized structure. There is the head of the house, and he is adept at giving commands to others. Under him is his son and then other members as per the seniority levels.
The chain of command is followed diligently where no one questions the power of authority. Although the modern home is going through various changes and you will find a decentralized structure taking over from the centralized one, especially in urban cities.
You can find prime examples of centralized structures in rural areas where nothing has changed, and the chain of command is still followed, just like in an organization with a centralized structure.
Factors that determine the centralization of authority
The management considers adopting a centralization structure because of the following factors –
1. To achieve uniformity of action
If a company wants to achieve uniformity of action, it will naturally take a centralized structure in its organization. Here the decision making power and authority rests with the top brass and the policies and procedures are the same or every department.
There are no disputes because the employees are not authorized to take independent decisions.
If a company is looking to integrate all operations to achieve company objectives then it is better to implement a centralized structure because it will facilitate the integration of activities by creating standard programs and policies for the company
3. Promoting personal leadership
If a company is looking to develop personal leadership, then it must choose a centralization process as it encourages the capability and strength of a central leader. The whole authority rests with a supreme power that enables quick decisions and imaginative action plans
4. Handling emergencies
Business is all about risks, and the conditions are more often uncertain and unfavorable. It is the trait of an excellent leader to forge his path in these circumstances, take timely actions and achieve company goals successfully.
This type of behavior is possible when you have a centralized structure and this s why a company opts for it.
Advantages of centralization
The numerous advantages of the centralization process are as follows-
1. Chain of command
In a centralized structure, there is a transparent chain of command and every employee in the organization is aware that the power rests in the hands of the owner or with top-level management.
The level of the hierarchy is defined, and every person is aware of who he should report to or approach in case of any concerns related to their work in the organization.
2. Standardization of systems and processes
One of the essential advantages of centralization is smooth, consistent and improved working, and this is because centralization enables standardization of systems and processes.
There is a set plan in motion where the chain of command decides how and whom to delegate. Senior executives delegate authority to employees or mid-level managers who they feel are excellent in specific work.
A clear chain of command is followed where the manager will also delegate work to employees working under him. The process continues until the lowest level reaches and the employees report back to their superiors.
4. Facilitates evaluation
The company has the same policies for every department. It helps in evaluating performances and comparing the results with other departments. The sense of competition will improve the overall performances of the employees
5. No overlapping of decisions
An essential advantage of centralization is that there is no overlapping of responsibilities or decisions. Everything is defined and clear-cut. While delegating workload, the executives are also confident that there will not be any overlaps.
6. Execution of decisions
The decisions are executed quickly and in a unified manner because there is no one to challenge the authorities. Only a very few are involved in the process, and they can discuss the details and come to a decision very quickly compared to other structures where everyone has a say, and it takes very long to go to a uniform decision.
These decisions are forwarded to the lower-level employees for implementation. There is no such thing as ego clashes or upset by any employee that their input has been ignored because only the top level is involved in the process.
Centralization enables economies of large scale. As there is centralized selling and buying it results in bulk buying and selling. When large quantities are involved, then it is easy to get discounts on transportation costs.
Better terms result in low prices and economies in managerial expenses.
8. Focussed vision
The centralized structures help the employees from top to bottom to focus on the vision of the organization and work towards its fulfillment with ease. As the lines of communication are clear and defined, the senior-level executives can communicate the company vision to the employees under them.
This encourages the smooth implementation of strategies and plans for fulfilling the vision. It is a fact that in a centralized organization, a uniform message is sent to all its stakeholders.
9. Reduced costs
The clear chain of command avoids duplication, and this helps to reduce additional costs. In the centralization structure, the decision-makers are located at headquarters, and there is no longer a need to deploy more equipment and departments to other branches.
As the critical decision is in their hands, they do not employ experts or specialists. The top management in the organization is diligent in its efforts to minimize administrative and office costs
10. Improved work quality
Each department in a centralized structured corporation is handled by a supervisor who ensures the qualitative and uniform outputs. There is less wastage from manual work, and the standard process along with better supervision ensures improved work quality.
11. Coordination of activities
Centralized management aids in coordinating the working of various departments as there is no issue as of pursuing separate agendas or independent policies in such a structure.
Disadvantages of centralization
The disadvantages of centralization are
1. Bureaucratic leadership
In a centralized structure, the sole power rests with the leadership. It is a type of dictatorship where the employer commands and the employees carry out the given order. The workforce is not involved in any planning or decision-making stages, and their input is ignored. They are the ones who implement the orders at all costs, even if it is not possible within the deadline.
2. Lack of motivation
The top brass is only concerned with the results, and they fail to motivate their employees by praising them, offering rewards or acknowledging their performances. It results in a lack of motivation and the employees slowly lose interest in the work.
They arrive in the office, want to stay the stipulated time and leave at the dot because of a lack of motivation in the workplace.
3. Remote control
The leadership and the top-level executives are involved in the decision-making process, but they are not implicated in the implementation. This takes away the actual power as the control is now only through the remote.
Failure of decentralizing processes adds up a lot of work, and in the end, the executives are unable to supervise the implementation process. This generally results in a poor implementation that is harmful to the organization.
The flow of information is slow and vertical, and this is why it takes a lot of time for the information to travel from top to bottom. If the employees have to wait for every instruction from the top brass, it will automatically cause delays and hamper their efficiency and productivity levels.
5. No scope for specialization
As decisions are made by one person, there is no scope for the services of experts or specialized people in the company. It is a fact that experts have a way to introduce new things and improve the existing ones, but a centralized structure is unable to benefit from the services of specialized authorities.
6. Lack of loyalty in employees
When employees are involved all the way they become loyal because it starts to feel as if the company is also theirs. But in an organization that follows a centralization structure, the employees feel left out at every step.
They are not allowed personal initiatives, not allowed to suggest any pointers that will be beneficial and are not even allowed to develop their creativity. In the end, the employee does not have any initiative in working, and this gradually leads to a lack of loyalty on his part.
7. Destroys individual initiative
There is no scope or individual initiative in a centralization type of structure. The film revolves around one person just like the earth revolves around the sun, and it is all about him.
He is the authority figure, and the employees cannot make any decision even if it is glaringly obvious that it will prove beneficial for one and all. This destroys individual initiative and is a mark against the centralized structure.
In this type of structure, the top executives are overburdened because they are involved in all of the top stages of the planning and decision-making process. They do not have even the time to see if their instructions are correctly followed by the other employees.
The top brass is overburdened to such an extent that they fail to coordinate and motivate their employees which is one of the first things an organization must do.
9. Slows operations
In a centralization type of structure, the authority is with one person, and if he is unavailable due to any reason, then matters become pending. It slows down operations and sometimes has terrible repercussions.
10. Distance from the customers
There is no point of contact between the top brass and the customers and hence they fail to realize what is the customer’s need. Similarly, they are unaware of market conditions, and without understanding the reality, the decisions can prove fatal.
11. Difficulty in adjustments
It is difficult for a centralized structure to make adjustments to the existing dynamic environment. The world is changing, and it is encouraging a decentralized structure where power is shared and distributed amongst each other.