What are the advantages and disadvantages of centralization?

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The advantages of centralization can be described as follows: –

1. Facilitates Evaluation: In cases where the same policies are used for all the parts of the organization, it becomes easy to evaluate their performance. Such a situation also helps in comparing the results of various departments of the organization. This situation also helps in achieving his sense of competition between different departments. The ultimate result is in the form of an improvement in overall performance.

2. Centralization of procedures and systems: Centralization also allows the centralization of procedures and systems. It facilitates smooth working of various departments. Similarly, a consistency can be achieved in the day-to-day workings of the organization. Consumer services also experience and improvement when standard policies are implemented.

3. Economies of Scale: The centralization of management also brings in the economies of large scale. There is centralized buying and selling which in turn enables bulk buying with significant discounts and saving in the cost of transportation. Similarly, when the sales are done in large quantities, it becomes possible to offer better terms than low prices to the consumers. An economy in managerial experiences can also be achieved.

4. Coordination of activities: Centralized management also helps in the coordination of the activities of different segments in the organization. On the other hand, in case of lack of centralization, the different departments of the organization may follow their independent policies. Such a situation may result in disintegration or disunity. The different departments of the organization may emphasize on their individual goals and may not bother about the objectives of the organization. On the other hand, centralized management helps in coordinating the work of different departments in a way that it becomes easier to achieve the organizational goals.


Disadvantages of centralization:
Apart from the advantages that are available in case of centralization, there are certain disadvantages of centralization also. It needs to be acknowledged that centralization can be solely up to particular extent and under certain conditions. Therefore, after a particular point, centralization creates problems in the regime working of the organization and it also restricts the growth of the organization. Therefore the disadvantages of centralization can be described as follows:-

1. Destroys individual initiative: Centralization revolves only around a single person. All the decisions are taken by this individual and only he decides the methods of implementing these decisions. No other person has the authority to use their own judgment, even if a glaring mistake is present in the decision. Therefore, it can be said that centralization destroys the initiative of the subordinates. They cannot give any suggestions and are only required to carry out whatever decisions have been conveyed to them.

2. Overburdened on the persons: In case of centralization, all the responsibilities are imposed on a few persons. The result is that these persons remain over-burned with the world while they subordinates do not have adequate work. As a result of the centralization of powers, the chief executive is not have sufficient time that can be devoted to significant tasks like planning, motivating and coordinating. On the other hand, in case of decentralized set up, the regime batters can be handled by the subordinates and the manager can concentrate on the important administrative work.

3. Slow down the operations: The operations of the organization are slowed down in case of a centralized set up. As all the decisions to be taken by a single person and in this office and availability the matters remain pending. Even clarifications regarding the decisions have to be there for the top-level and precious time is lost in such formalities. In these powers have been given to the subordinates to interpret the decisions then the operations can be tuned up. In case of a centralized setup, things move very slowly, because everything has to pass through the top-level management.

4. Distance from customers: The customers do not come in contact with the policymakers. The customers only meet the officials of the organization who do not have the power to take the decisions. Moreover, it is not possible for a single person to meet and know the reaction of all the customers regarding the products and services offered by the organization. This also comes in the way of acquiring knowledge regarding market situation by the chief executive of the company.

5. No space for specialization: Centralization does not allow any scope for specialization. All the decisions are taken by a single person and such a person may not be specialists in all the fields. In the present world, it is necessary to use the services of specialists. The specialists can introduce new things in their particular fields and similarly they can also improve the performance of the organization. Even if the specialists are employed under a centralized setup, generally they are not provided a free hand in their particular field. They have to convince the chief executive who has the ultimate authority to make the decisions. Hence the specialists do not have any role to play in an organization that has centralized authority.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:July 31, 2017
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