Centralization is known as the systematic reservation of decision making authority at the top level management. It is said to be a process where the concentration of decision making is in a few hands. All the important decision and actions at the lower level, all subjects and actions at the lower level are subject to the approval of top management. It reduces the roles of subordinates and the top level assumes full authority of running business activities.
The following are the main drawbacks or disadvantages of centralization:
Centralization is Unsuitable for Large Organization
Centralization is impractical in large business organization having various branches in different locations. It is difficult to communicate managerial decisions to different operating levels in the management hierarchy. Top level managers cannot effectively supervise and control all the activities of the organization.
Destroys Individual Initiative
Centralization revolves around one person only. One man takes all the decisions and decides the modes of implementing them. Nobody is given the authority to use his own judgment even if there are glaring lacunae in the decisions. It destroys initiative of subordinates.
Manager is Overburdened
In centralization, top managers are over burdened with authority and responsibility while managing each and every activity of the organization. They remain over-burdened with routine work while sub-ordinates do not have sufficient work. The centralization of all powers do not allow the chief executive to devote sufficient time for important tasks of planning, coordinating and motivating. He/she cannot devote sufficient time in other major issues. It tends to decrease working efficiency of the organization.
Slows Down the Operations
The operations of the enterprise are slowed down under centralized set-up. All decisions are taken only by one person and his unavailability keeps the matters pending. Even clarifications about decisions are referred to the top which destroys invaluable time in formalities. If the subordinates have powers to interpret decisions then operations can be toned up.
Possibility of Power Misuse
Centralization of authority at the top level may result in under-utilization of power. Top level managers may exercise their powers on the basis of their personal judgement. This may lead to misuse of authority if the managers lack proper skills and ability.
Low Morale Motivation
In centralization. middle and lower level managers feel uncomfortable while performing the assigned task. They do not have the required authority to deal with problems effectively. They do not get any opportunity to show and develop their personality. The lack of motivation tends to affect the morale of subordinates.
No Scope for Specialization
Centralization does not offer any scope for specialization. All decisions are taken by one person and he may not be a specialist in all the areas. In the present competitive world there is a need for employing the services of specialists. The specialists will be able to introduce new things in their fields and they may improve the performance of the enterprise.
Lack of Environmental Adaptation
Business environment is dynamic and therefore, it changes according to time. In business, it is essential to take quick decisions to resolve problems of concerned departments or branches. Centralization is not applicable in dynamic environment as flexibility will not come promptly from the top level.
Inappropriate for Routine Decisions
In centralization, top level managers devote maximum time in taking routine decisions. Therefore, they cannot devote more time in non-programmed decisions. This will have a negative impact on the long term performance of the organization.
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