Centralization

An organisation is centralized if its main areas of authority are handled by a few senior managers in the head office. The managerial functions of planning, research and development, personnel and finance functions are not delegated with enough authority.

There is little diffusion of appropriate authority because the senior managers at the centre do not want to delegate more work to their subordinates.

Advantages of centralization

• Decisions are made quickly and co-ordinated easily at one point.
• Top managers take a wider view of problems and consequences. A proper balance is maintained between different departments and functions especially regarding resource allocation.
• Quality of decisions are theoretically supposed to be higher because of senior manager’s better skills and experience.
• Crisis decisions are taken at the centre more quickly without any need to refer back to get authority.
• Policies, regulations and procedures can be standardized organisation-wide.
• Finally it is possibly cheaper to reduce the number of managers as this will lower the overhead costs.

Disadvantages of centralization

• Rules and regulations are functional hence the employees feel that their superiors issue orders to hold powers over the subordinates. This reduces the effectiveness of interpersonal communication and increases tensions between the superiors and their subordinates.
• Rules are dysfunctional because employees use them to learn the meaning of minimum behaviour and productivity which is expected from them.
• Complexy of decisions and bureaucracy leads to slow decision making process.
Innovation and creativity are discouraged. The subordinates do not have chance to think and make their decisions which they have initiated.
• Customer responsiveness is slow as the top managers are not near their customers.
• Centralized organisations tend to be bureaucratic and slow to adapt to new changed conditions.
• Control system is outdated because feedback on errors is used to initiate correction after the problems have happened but not preventing such problems.

If the key groups of managers at the centre want to delegate more work to their subordinates then they must give appropriate authority to the employees