Centralization is the process by which all the decision-making regarding important and strategic matters are taken by the top management while the rest of the workers are expected to follow their command and do their work resulting in decision-making power and authority being concentrated at the top level only. In order to understand more about this concept, one should look at some of the advantages and disadvantages of centralization –
Advantages of Centralization
Quicker Decision Making
The first and foremost advantage of centralization is that it results in quicker decision making because since all decisions are taken by one person in case of small companies or small group of people in the case of large companies resulting in a quicker response by the top management to emergency situations as well as a decision relating to important matters. In simple words, if there are 3 movie directors directing the same movie than one can imagine the problem because all three directors will have different stances towards the movie resulting in movies getting delayed the same is the case with companies where decentralization leads to delay in decision making.
Work Standardization
Another advantage of centralization is that it results in work standardization as all employees know that authority and decision making is flowing from top to bottom and their task is to complete the work which is given to them by their supervisors besides there is no overlapping of authority which removes any scope of confusion among the workers of the company.
Cost Saving
When there are many decision-makers which is the case with decentralization then the company needs to have many managers at various levels in the company leading to it being an expensive proposition for the company. In simple words, centralization helps the company in saving of costs associated with the hiring of top-level management and middle-level management.
Disadvantages of Centralization
Communication Gap
The biggest disadvantage of centralization is that it leads to a communication gap within the company because top management does not ask the people who are the ground working rather they decide the strategy and expect middle and lower-level management to follow their plan. In simple words due to lack of two-way communication between workers and top-level management, centralization suffers from a communication gap that can be disastrous if not taken care of by the top management.
Workers Dissatisfaction
Another problem with centralization is that workers will be dissatisfied as in the case of centralized companies there is no scope for any innovation as top management prefers to implement their ideas and strategies rather than taking ideas from people working at the ground level. In simple words in the case of centralization workers are expected to work like robots and we all know that workers are humans and humans crave not only money but also about recognition, status, and respect and if deny these things then naturally, it will lead to dissatisfaction among the workers.
Lack of Expert Opinion
In the case of a centralized structure, top management tries to take all the decisions whether they are of technical nature or non-technical nature which can be disastrous because if you do not take experts’ opinions then chances of you succeeding are very less. In simple words, a movie director can direct a movie but if he or she tries to compose music, write the screenplay and do acting also than chances of the movie being a success is less, same is the case with a company where top management will fail if they try to make all decisions without consulting specialist for the job as in today’s world specialization is one of the many pillars of sucess.
As one can see from the above that centralization has advantages as well as disadvantages and that is the reason why any company thinking of adopting this strategy into the company should carefully read the above points and then only go for the centralization of decision making.