Advantages of Centralization

The following advantages are claimed for centralization:

 It is a means for adopting and enforcing uniform policies and it achieves
coordination and conformity since all decisions are made at one central
point.
 The quality of the decisions is expected to be higher since the top management
who make such decisions are much more experienced and knowledgeable
about organizational problems and situations than the subordinates who are
still ‘going through the mill’. Also, decisions made by subordinates in
decentralization may not be optimal for the entire organization since the
subordinates lack the wider perspective of the needs and issues of the
organization as a whole and tend to concentrate on the optimality of their
own units.
 Centralization makes it easier to achieve a balance among the activities of
different departments and functional areas. If the departments of production,
marketing and finance, each went its own way, then each would try to make
decisions that would be beneficial to its own department, even at the cost of
other departments. This would be harmful to the organization as a whole.
The centralised system looks at these different sub-units as parts of the
whole unit and relates these sub-units to each other so as to maximise the
total benefits.
 Centralization results in the optimal utilisation of human and physical
resources. One of the disadvantages of divisionalization and decentralization
is the duplication of efforts and resources for similar activities being conducted
by different sectors of the organization. For example, General Motors has
five divisions with each division having its own executives and separate
research facilities which would be combined under centralization.
 The central management is better equipped to handle any emergencies that
might affect all the units of the organization. This emergency may be related
to policy matters or operational matters. This may be a breakthrough in
technology or a sudden change in the tactics of competitors. For example,
if one airline suddenly and drastically reduces its airfares, other airlines must
follow immediately to keep their market share. This can only be effectively
done through central management.
 Centralization provides for the services of staff specialists in those areas
where they are needed. Different units of the same organization independently
would not have the resources to provide for specialised services.
 Centralization can be highly motivating and morale boosting for executives.
It is better to be an important executive of the whole organization than only
Staffing
NOTES
Self-Instructional
106 Material
of one unit. It provides prestige and power which strengthens the selfconfidence
which in turn would be useful in decision making at time of a
crisis.