What Is Centralization ?
Centralization is a traditional type of organization set up in which power and authority such as decision making, planning, policy making, supervision, direction, resource allocation etc. are exercised by the higher level management. It is commonly practiced by small organizations having fewer resources, finance and employees. Managerial activities are handled by superiors and other members (lower level managers and subordinates) are responsible for operating activities.
Benefits Or Advantages Of Centralization
Some of the notable advantages or centralization are as follows:
1. Simple Structure
This organizational structure is easy to set up and understand. Roles and responsibilities of each member is clearly defined and the subordinates are accountable for only one boss which helps to eliminate confusion, misunderstanding and duplication of work.
2. Cost Efficient
Centralized organizations requires less expenses, less resources and fewer number of employees because of single authority. Therefore, centralization is more cost effective than decentralization.
3. Suitable For
Centralization is suitable for the following conditions:
* It suits for small firms having less operational activities and fewer number of employees.
* It is suitable for those companies which cannot invest more capital and resources
* When subordinates are incompetent and require close supervision, direction and supervision.
4. Quick Decisions
Another advantage of centralization is that it allows quick decision making because of single authority and reservation of power in the top management. Managers can make decisions without consulting other members in the organization. Quick decisions are very useful in the time of crisis and emergencies.
5. Secrecy
Top level managers do not share official matters with subordinates in centralized organizations. So, internal and private matters can be kept confidential. Therefore, centralization ensures proper secrecy and privacy.
6. Better Quality Of Work
Because of clear chain of command, standardized system and better supervision in the workplace, employees' performance and efficiency will be improved. Improved performance leads to improve in the quality of work and productivity of the firm.
7. Proper Control
As we know that centralization is exercised by small firms having less activities and fewer number of employees. So, it is easier for the management to maintain better control and discipline in the organization.
Drawbacks Or Disadvantages Of Centralization
Disadvantages or constraints of centralization can be described as follows:
1. Over Burden To The Managers
In centralized organization structure, power and responsibilities are given to top level managers. So, managers have to handle entire organizational activities which may lead to overburden and they cannot give sufficient time for other important functions such as policy making, business expansion etc.
2. Not Suitable
Centralization is not appropriate for large organizations having various activities and more employees. It is also not suitable if the subordinates are skilled, educated and experienced because they do not need more guidance and instructions.
Also Read:
Advantages And Disadvantages Of Decentralization
Difference Between Centralization And Decentralization
3. Lack Of Specialization
Because of the sole authority and concentration of power in the center, it discourages specialization in the organization. Lack of specialization may lead to decrease in the performance and productivity of the firm.
Due to the lack of specialization, there is no scope of growth and development opportunity for the employees. It may decrease the motivation and morale of subordinates. Decreased morale may lead to decrease in job satisfaction and increase the rate of employee turnover.
5. Possibility Of Dictatorship
Because of the bureaucratic management and concentration of power, there is a high chance of misuse of power and dictatorship in centralized organizations.
6. Lower Productivity
Due to the lack of specialization and strict control, employees may be dissatisfied. Employee dissatisfaction negatively affect their performance which leads to decrease in the productivity and profitability.
Pros And Cons Of Centralization In Short
Pros:
- It is simple and cost effective organizational structure
- It is suitable for small firms which cannot afford more investment
- It allows prompt decisions at the time of emergency
- It ensure strict secrecy and privacy
- It ensures better quality of work because of proper supervision, monitoring and control
- There is a clear chain of command
Cons:
- It increases the workload of the superiors
- It lacks specialization and division of work in the workstation
- Managers may misuse their power
- Employees' morale may be decreases due to the dissatisfaction
- There is no scope for growth and career development
- It is not suitable for large scaled organizations
