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Centralisation, why not advised nowadays?

Posted on: Sunday, 3 September 2017

Authority and power sometimes are concentrated in one department in an organization (head office). For example, production decisions of various products are not delegated to each production manager. This type of concentration causes inconvenience to production managers to take decisions at critical times. Departmental concentration is again may not be conducive for growth of the organization.

Concentration of power and authority with the top management will hamper the growth of the organization. But certain advantages are enjoyed in this process.

Centralization Disadvantages:

Delay in taking decisions; Top management is over burdened with many functions and problems associated with them, and this lead to losing tenders, profit chances, clients and market shares. Moreover Adaptability to fast charging environment becomes difficult; additionally the top management cannot identify profit centers and weak centers. 

Staff is facing problems; as comparative performance appraisal may become difficult as the span of control is too large also supporting staff are overburdened with tasks

Less Creativity; some business owners might not want centralized control of a company that requires a high degree of creativity from employees. When the control function is decentralized, employees can often work within a more democratic structure, sharing ideas for improving processes and products until they're refined and forwarded to the business owner. When the central office holds tight control, a high degree of innovation is harder to achieve because employees are less likely to suggest deviations from the company’s status quo.

Limited Communication; A centralized structure can limit the quality of communication up and down the hierarchy. It's cheap to communicate with employees from the central office using a medium such as email; this kind of sharing with employees via email creates a degree of transparency. However, with tight control employees may not be inclined to use email to communicate with the head office because they’re more comfortable using the chain of command, sharing ideas with their managers only.

Inflexibility; any business should have a high level of flexibility. Requiring employees to seek approval from the head office before making decisions fosters rigidity. In a small chain of restaurants, for example, in hospitality industry if a restaurant manager must check with the head office before creating daily menu specials, he can miss out on cost-saving opportunities. He might want to create a special to get rid of excess food inventory before it expires. While waiting for approval, food can spoil and the restaurant will miss the opportunity to sell that food in higher volume to customers through a daily menu special.

Delegated Authority; Business owners often depend on line managers to communicate central directives in a standard way. This is something that a business owner cannot assume will happen because managers may interpret those orders in different ways. In delegating authority, it’s important to define clearly which decisions belong to the central office and which belong to line managers, giving some autonomy to managers and empowering them to innovate.

Because of these disadvantages, absolute centralization is not considered, particulars in a fast growing economic scenario. Therefore, decentralization and tall organizations emerged. But in recent times with the increased adaptation of IT solutions in business operations, organizations are becoming flatter and concentration is taking place.



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