Centralization – Concept, advantages, disadvantages and examples

We explain what centralization is, how it is classified and its advantages and disadvantages. Also, examples and what is decentralization.

Centralization - company - organization
Centralization creates cores of power, responsibility, or processing.

What is centralization?

We speak of centralization when the powers of decision or process within any organization tend to converge in the same instance, or in simpler terms, when all the power or all the obligations tend to fall in the same organizational instance, either as part of a government, a company or any administrative model.

Centralization will then be the tendency to centralize, that is, to create cores of power, responsibility or processing, which have many inputs and a few (or only one) outputs, thus creating a convergence. This can occur in many human and even biological areas, since a centralized management of resources can be, on certain occasions, much more efficient than a dispersed one.

For example, centralist governments are those that prefer a single and hegemonic center of power from which to govern the rest of the country, instead of a tendency to dispersion and autonomy such as that proposed by the decentralization of federal or federative governments. In the business sphere, similarly, we speak of centralization when the lower levels in the business hierarchy transfer their administrative authority to a higher level, that is, they converge in the same leadership or supervision.

Types of centralization

Centralization - organization - company
Managerial centralization manages communications to team leaders.

In the administrative field, we can talk about different types of administration, such as:

  • Centralization of performance. It applies to geographic and operational centralizations within an organization, as would be the case of a company that locates in a single of its headquarters all the personnel of a certain process, or that channels all requests from a certain region through a branch. .
  • Centralization of department. It occurs when an organization builds specialized departments or coordinations, to which it will go to systems and will take care of all the IT and technological requirements of the rest of the company.
  • Managerial centralization. It strictly concerns decision-making, concentrated in a high-level management or some type of executive leadership, which also manages communications with team or department leaders, thus having full and centralized control of the company.

Advantages of centralization

All centralization pursues an increase in control. The centralist models facilitate surveillance, single decision-making, control of resources and the specificity of the organization, since nuclei of decision or processing of the different tasks are created, preventing the tasks from being duplicated, repeated or dispersed. All centralization generates hierarchies and establishes leadership dynamics, making it an ideal system for strong leaders.

For example, centralist governments were very important during the time of the formation of the Latin American nations, because by centering all political and economic power in the figure of a president, the nation was more easily constituted and much less room was left for anarchy and the eventual dismemberment of the country.

Disadvantages of centralization

Centralization - company - organization
Centralization can generate authorities on which all the work falls.

Centralization also has its disadvantages, especially with regard to the dependency between the core and the periphery regarding decision-making and information processing. It is usual in centralized models that “bottlenecks” appear, that is, funnel dynamics in which the input of a department is much higher than its processing or decision-making capacity, but since everything is centralized, no one else can unburden the flow. pending workload. This causes delays and sabotages uptime.

Another risk of centralization has to do with despotism or excess rigidity in the hierarchy, thus being able to generate authorities on which everything falls. This reduces junior staff to merely following orders or instructions, forcing them to wait for a response from management that often takes, and is often required quickly, for immediate decision making. Bureaucratization is often the consequence of excessive centralization.

Example of centralization in a company

A clear example of centralization in the management of a company is constituted by the creation of a Strategic Management o Operations Management, in charge of supervising absolutely all the sections of the organizational management. This authority will have full powers in the company and will therefore be able to make appropriate decisions to promptly resolve difficulties, will be able to freely request information and will be able to intervene in any process as it deems necessary. This will reinforce the company’s work criteria, prevent risky decision-making and aim to create a common administrative criteria, reducing anarchy to a minimum.

In return, however, there will be a noticeable increase in corporate bureaucracy, since all communication and all documents must also be sent to the new management, which in turn will issue new documentation to transmit its decisions. In addition, there will be the risk that the decisions of this management will be delayed (suppose, due to the momentary absence of key personnel) and subject the rest of the company to a waiting time, delaying the entire production line.


Decentralization - centralization
A decentralized regime consists of a number of independent units.

Decentralization is, logically, the opposite process to centralization, that is, the tendency to give autonomy of action and independence in their procedures to the various units of an organization, such as coordinations or departments. A decentralized regime consists of a number of independent units, each capable of facing similar obligations.

Political decentralization is key for federal or federative governments, which consist of the union of equals between the different states or departments that make up the country.

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