Centralization in an Organization: Advantages and Disadvantages

Centralization in an Organization: Advantages and Disadvantages

Centralization in any business organization is the spotlight of pre-eminence and control which lies in the hands of very few people. Implementation of this abstract notion will bring out both positives and negatives, just like in any concept. Let’s look at the various advantages and disadvantages of implementing the idea of centralization within an organization.

Advantages of centralization:

  • Unbiased allocation of work: Being fair and just in assigning a particular amount of work, not only between different units but also between responsible individual employees will increase momentum within the Company.
  • Standardization of work: By implementing centralization, one of the outcomes would result in equality of behavior that guarantees unvarying judgment and standardized progression.
  • Area of specialization: There is an immediate advantage if a leader who handles a particular area is an expert in the same field. This will ease the work distribution process within the other levels of the team.
  • Replication of work: Centralized training and standardization of work leave no scope for replication of tasks or actions. This eliminates additional expenditure on excessive labor for duplication of work.
  • Flexibility: In a crisis or an emergency, standardization of work takes just one step to revise all the activities at once. This guarantees a greater degree of flexibility in an organization than a Company with no centralized training.

Having stated all the advantages of centralization, it is also important to be acquainted with the negatives before putting the concept into effect.

  • Administrative system: A centralized administrative system gives way to inequity through the instigation of excessive regulations or strict conformity to official norms which is redundant or bureaucratic and that hinders decision-making and delays work.
  • Dictatorship: An employee is always expected to work according to what has been dictated to him. No employee at the subordinate level is given the authority to take a decision on a particular issue, in the absence of the lead. This causes psychological reluctance and the employee sees no growth or motivation within the corporation and hence results in him being disloyal towards the Company.

The system of centralization, thus, cannot be easily upheld. There is a thin line between every norm and its outcome that is adapted in this concept. Centralization requires a clever yet delicate way of handling in order to help sustain for a longer period of time as the most important factor, secrecy, cannot be easily maintained in a system that is centralized to all.

Do share your thoughts on the same.

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  • Organizations go through typical cycles of centralization and decentralization. The first phase of an organization, a start up company, for instances, is centralized: a few founders working on all organizational tasks – accounting, R&D, sales, marketing, personnel, etc. The company hires more people as it expands with every new employee being interviewed by the founder. At some point in the company’s growth it passes into the second stage That occurs when there are new employees hired unknown to the founders. In other words, the founders have allowed others in the company to hire their own people. This is the first level of decentralization. It must happen to ensure growth. A company that gets stuck in the first level wherein the founders keep everything within their grasp including hiring all employees will find itself unable to grow and eventually collapse or disappear. This is not necessarily bad. The company could be bought by a larger company desiring its intellectual property making the founders quite rich and that could have been the goal of the founders.
    However, a company wishing to grow and expand must enter the second level which is the first of decentralization. Good, bad or indifferent, it must be done.
    The subsequent phases of the organizational life cycle culminating in the eventual demise of the organization through absorption, merger, bankruptsy, graceful close, irrelevancy, and so forth, all involve various stages of decentralization. Each stage has a clear demarcation such that should the organization not make the decision to further decentralize – or centralize as the case may be – the organization will stagnate and not reach it’s maximum potential Most of the failures in this regard are not due to business conditions or even social conditions, but to the psychology of the founders or those in current leadership of the organization.

  • I fully agree with the conclusions of this article. Centralization hasn’t worked well anywhere over the long term. It is the enemy of innovation, fast decision-making, and the ability of an organization to self-evaluate and change to meet changes in external operating conditions. Someone once said, “it’s not the big that eat the small, it’s the fast that eat the slow”. In terms of organizational design, there are four general options that guide such initiatives: companies can be designed around geography, function, product and customer. Centralized organizations are usually designed around function and are therefore internally focused and and headquarters centric. These are, in my experience, the most change-resistant organizations and the most vulnerable from a competitive standpoint.

  • mwandet thomas moses

    it is my great delight immense pleasure to have gotten such a vital information about an organizations organization’s decision making level. as a student, i must say that i am fully equipped as to that regard. thank you.

  • Aleem Malik

    for new businesses centralized system is one of the best but competing with other organization this prove to be worse. because this world is running on innovations(like APPLE or HTC), every person wants something new, and centralization can take you with old ideas and tactics.

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  • Md. Sorowar Murshid

    Centralization process of financial institution is more risk free and

    cost effective.