Centralization implies the concentration of authority at the top level of the organization. In this, all important decisions are taken by the top level executives. The operative decisions and actions at lower level are subject to the close supervision of the top executives. Centralization and decentralization are relative terms because every organization structure contains both the features. Personal leadership is the main factor which determines centralization in an organization. In fact the success of an enterprise depends on the personal leadership of a dynamic leader. Authority may be centralized to facilitate personal leadership. It results in quick decisions.
Centralization is an effective means of unification and integration of individual efforts. Centralization acts as a binding force on the various parts of the organization. Authority may be centralized at the top, where uniformity of action is needed. In personnel, purchasing and advertising such uniformity is desirable. Also, centralization can help in handling emergencies. When competition is acute or the situation is very urgent, centralized decision making is crucial. Centralization enables the management to exercise effective control so as to achieve economy in operations. It helps to avoid overlapping efforts and duplication of work.
The main advantages of centralization are it utilizes the talents of the top leader most effectively, it facilitates the integration of all operation of the different parts of the organization, it helps to develop a strong coordinated top management team and it ensures uniformity of policies and plans. Finally, it minimizes duplication of functions and facilities. Nevertheless, there are some adverse effects of the centralization. Though they do not outweigh the merits some of the important points have to be discussed. It includes the time consuming reporting and slower actions as they are executed only orders. It does not motivate the subordinates as they have no role in decision making. It also minimizes the number of divisions or departments in the enterprise.