Definition: Centralization, means the concentration of powers, authority and control, at the head or centre of the organization. So, the location of powers as to planning, decision making, formulation of policies, etc. lies in the hands of top-level management, which consists of a few executives who regulate the organization.
In a centralized organization, there is only one focus of control, And so, the powers are concentrated and retained by the group of people or by a particular authority, while the rest of the members receive orders, and work as per the directions.
The system seeks to improve efficiency by making use of potential economies of scale and to increase reliability by reducing the chances of errors.
Further, the level of centralization in an organization is measured on the basis of – hierarchy of authority, as well as the degree of participation in the process of decision making.
Objectives of Centralization
Centralization is an organizational philosophy which stresses on the selective concentration of the authority, within the organization structure. The objectives of centralization are discussed as under:
- To facilitate personal leadership: At the time of commencement of the organization, the success of the organization is based on personal leadership and supervision of the dynamic and visionary leader. When the authority is centralized, personal leadership may result in effective decision making and imaginative action.
- To improve efficiency: Overlapping of efforts and duplication of work can be avoided with centralization, to a great extent. The management can exercise higher control to reduce waste and attain economy in operations.
- To increase coordination: The success of every organization depends on the coordination of individual efforts. A centralized system acts as a thread which coordinates the work of different units and subunits of the concern.
- To achieve uniformity in action: To cause the uniformity and consistency in actions and policy, authority is centralized at the apex level of management. The uniformity in decisions and actions is a must in personnel, purchasing, marketing, etc.
However, this system limits the growth and development of the lower-level workers, as they are not allowed to act on their own initiative, and they became dependent on the top-level management for various decisions.
Advantages of Centralization
- Clear Chain of Command: As there is a unity of command, centralization tends to improve coordination in the organization.
- Consistency in Decision Making: Due to the concentration of power at the apex level, it ensures consistency in the decisions, taken at different points in time, to meet the organization’s objectives.
- Optimum utilization of resources: Centralization facilitates effective utilization of organizational talent and resources, which helps in developing the corporate personality.
- Uniformity in procedures and policies: There is a uniformity in the work processes, which are performed as per the same policies and procedures.
- Better control over operations: With centralization, maximum control over the organization as well as its operations is possible.
- Economy in Administration: As the employee gets orders from the top management directly, the chances of chaos and duplication of work are minimum, which ensures the economy in administration.
Disadvantages of Centralization
- Delay in implementation of actions: As the workers have to refer to the top-level management of the organization for every action which increases dependability and also delays the implementation of actions.
- Autocratic control: Centralization of the activities results in autocratic (absolute) control over the subordinates, which reduces the flexibility in work.
- Increases irresponsiveness: The decisions are taken by the top management, but at the same time they are not completely aware of the local conditions and requirements, which results in irresponsiveness.
- Lack of employee’s participation: Due to the concentration of the powers in the hands of a few people, employees do not get the opportunity to act on their own, and so there is lack of employee’s participation.
In a nutshell, centralization is the process of withholding, a greater portion of formal authority, at the top tier of management. Therefore, all important and crucial decisions are made by higher-level executives only.