Define centralization. State and explain the advantages and disadvantages of centralization.

 CENTRALIZATION OF AUTHORITY

Centralization is the process of systematically retaining decision-making power at the top level of management. In simple words, holding the decision-making power at the center i.e. top level of the organizational structure is called centralization. It is a philosophy in which top-level managers exercise all their rights in making decisions.

In a relatively centralized organization, considerable authority and accountability remain at the top of the hierarchy. Top-level management makes all decisions without the consent of subordinates. The role of subordinates is only to implement the decisions made by top-level management. Centralization is the system of reserving authority in a few hands of the central or top level of line organization.

Ricky W. Griffin - "Centralization is the process of systematically retaining power and authority in the hands of higher-level managers."

Ivancevich, Donnelly, and Gibson-"Centralization refers to the location of decision-making authority In the hierarchy of the organization."

Allen - "Centralization is the systematic and consistent reservation of authority at a central point in an organization."

Weihrich and Koontz - "Centralization, as an aspect of management, Is the tendency to restrict delegation of decision making. A high degree of authority is held at or near the top by managers in the organizational hierarchy."

In conclusion, centralization is the philosophy to which decisions are reserved to the top-level managers by the provision. Under this system, top-level managers hold total authority for every decision in the organization. The role of subordinates is limited only to the implementation of decisions made by top-level management. Delegation of authority cannot be considered under centralization. In such conditions, General Manager takes decisions about everything and all the departments need to report directly to the General Manager.

ADVANTAGES OF CENTRALIZATION

Centralization is the philosophy of making decisions at the top level of management. This facilitates the following advantages:

1. Unity in the decision: Under centralization, top-level management or General Manager makes all the major decisions. Followers need to implement the decision made by the top level without any disagreements. Thus, it becomes easy to maintain uniformity and consistency in decisions in the organization.

2. Less operation cost: As only one person makes the decision, many positions can be reduced from the organizational structure. This helps reduce the administrative cost. Only a few managers can complete the tasks with the minimum cost of production.

3. Simplified structure: Under this concept, only a few levels and positions can be applied as the decisions are made at the top level by limited personnel. All the employees are expected to follow the instruction and guidance of the top-level manager. It is not necessary to assign authority to different people. So, organizational structure can be easily understood and applied.

4. Unified leadership: Under centralization, the top leader makes decisions. A leader takes care of all areas of the business. Talent leader makes decisions quickly. There will be no confusion regarding decisions and direction. The leader becomes more imaginative and competitive. These provisions facilitate the quick growth of the organization.

5. Better coordination: Top-level manager makes all the decisions, departmental managers and subordinates need to only implement the decision. This reduces the chance of interdepartmental conflict in resource utilization. Central decision-making improves coordination and control.

6. No duplication and overlapping: As the top managers make decisions, thus there will be no duplication and overlapping in activities. The chances of making the decisions twice or more will be null. At the same time, there will be no chance of remaining in any task. Thus, centralization facilitates in optimal utilization of resources.

7. Integrates operation: Top manager maintains close relations with every supervisor and subordinate. Activities and efforts of every unit and department are integrated for organizational purposes. Effectiveness and efficiency can be increased with synergy effects. This facilitates organizational growth and diversification.

8. Facilitates in change management: Unified direction, control, and decision-making provision of centralization facilitate effective decision making. Decision makers can be strong and determined. There will be one opposing the decision of top-level management. This organization can be positive for a change.

DISADVANTAGES OF CENTRALIZATION

Centralization is not always beneficial.  It is not suitable for large and diversified organizations. It is essential to analyze various limitations of centralization. 

Centralization possesses the following limitations in general:

 1. Delay in the decision: There is the possibility of delay in decision making because the files need to move from the bottom to the top level for making a decision. Only one person cannot make all the decisions quickly. This increases the chance of losing business opportunities and profitability.

2. Limited capability: The capacity of subordinates cannot be utilized in the decision-making process. Only one manager has to make all the decisions even for different functional areas. A single person may not be efficient in making all the decisions at quick run effectively. Thus, the limited capacity of decision maker may decrease the quality of the formulation of strategies, operational plans, and implementation which result in the low performance of the organization.

3. Work overload: As only one person has to make all the decisions, thus the manager should always work under overload. Work overload causes delays in decision-making. This also decreases the quality of decisions. This may hinder on growth and diversification of the organization.

4. Low morale and motivation: Middle-level managers, supervisors, and operating employees are not involved in the decision-making process. They have only the responsibility of job accomplishment but no authority for making decisions. They have to wait for decisions from top authorities. This causes a decrease in morale and motivation of the employees. The turnover rate of qualified, skilled, and experienced employees get increased. 

5. Chance for power misuse: Top-level managers make decisions on the basis of personal judgment as 5. the authority is centralized. The decision maker thinks s/he is the sole authority of the organization. This increases the chance of misuse of power for personal benefits. 

6. Lack of environmental adaptation: In this system, decisions may be delayed and inflexible because of work overload and limited capability. Limited knowledge and experience of decision makers may not be ready to take any risk for new business ideas and practices. Thus, the manager takes decisions only in the traditional way. Thus, there can be problems with the adaption of environmental changes.