Centralization

According to Allen, centralization is the systematic and consistent reservation of authority at central points within the organization. In centralization little delegation of authority is the rule; power and discretion are concentrated at the top levels. Control and decision making reside at the top levels of the management. The more highly centralized the organization, the more control and decision making reside at the top. However absolute centralization is untenable because it would mean the subordinates have no duties, power or authority. Most organizations start out centralization of authority initially. Such an arrangement helps the manager to be in touch with all operations and facilitates quick decision – making. Centralization may be essential in case of small organizations to survive in a highly competitive world. But as the organizations to survive in a highly competitive world. But as the organization becomes more complex in terms of increasing size, interdependence of work-flow, complexity of tasks and spatial physical barriers within and among groups, a function requisite for efficiency is to move decision-making centers to the operating level. Thus, the larger the size of an organization, the more urgent is the need for decentralization. This does not mean that decentralization is good and centralization is bad. Centralization or decentralization may be, in part, merely the result of circumstances. There are certain special circumstances forcing managers to reserve authority and centralize decision-making power:

 

1. To facilitate personal leadership. Centralization generally works well in the early stages of organizational growth. Working under a talented and dynamic leader, a small firm can derive advantages in the form of quick decisions, enterprising and imaginative action, and high flexibility. Centralization enables a small organization to capitalize on the loyalties, ability and experience of its most talented top management people. Under this arrangement the manager is in touch with all operations, makes all decisions, and gives all instructions. Thus, centralization can project the personality and skills of one outstanding leader more meaningfully.

2. To provide for Integration. Under centralization, the organization moves like one unit. It keeps all parts of the organization moving together harmoniously toward a common goal. It assures uniformity of standards and policies among organizational units. The danger of actions drifting and getting off course is minimized. The manager acts like a unifying force and provides direction to enterprise activities. In the process duplication of effort and activity are also avoided. To see that all units do the same thing in the same way or at the same time without wasteful activity, centralization is essential. 

3. To handle emergencies. Centralization is highly suitable in times of emergency. The resources and information can be mobilized quickly and efficiently. Quite often emergency situations like declining sales, introduction of a highly sophisticated competitive product, government policy changes may force the organization to cut down costs, maintain inventories at an optimum level, utilize resources effectively and instantaneously. Centralization of decision-making ensures prompt action necessary to meet the emergencies.