A Complete Guide to Centralization Strategy

4 years ago

Centralization refers to a setup in which the decision-making powers are concentrated in a few leaders at the top of the organizational structure. Decisions are made at the top and communicated to lower-level managers for implementation.

What is Centralization Strategy?

Centralization refers to a setup in which the decision-making powers are concentrated in a few leaders at the top of the organizational structure. Decisions are made at the top and communicated to lower-level managers for implementation.

What Are the Advantages of Centralization?

Centralization facilitates proper planning and control. Since all the actions and decisions of a centralized system can be controlled by one source, the system remains manageable. The decentralized system, on the other hand, being ‘every man for himself’, is too unmanageable. Besides, in a centralized system, the employees are willing to accept and follow the decisions of the top management because their trust is not broken. Also, a centralized structure facilitates good interdepartmental communication throughout the organization.

What Are the Disadvantages of Centralization?

It is a centralized decision-making system. Individual freedom is reduced to a great extent. It dehumanizes those who are placed in it. Meetings are of frequent occurrence. Mistakes are more easily covered up. There is need for high level of communication between the top and lower level management which may not be available all the time.

What Are the Kinds of Centralization?

Corporate Centralization: A centralized organization having a single head who is responsible for everything. Each and every decision is made by the Chairman.

Operational Centralization – Centralization in functional areas. Operational functions are assigned to division heads who report to the highest management.

General Centralization: It is a combination of Corporate Centralization and Operational Centralization.

Applications of Centralization:

Centralization provides a clear-cut plan of action which is easier to execute. Centralized business schedules are easier to deal with. Centralized plans are easier to implement. With one focal point, information, it is communicated quicker. Reporting becomes simpler. Decisions are easier to make as information is centralized with one source. Centralization plans are easier to communicate within the organization.

Centralization is preferred over Decentralization as a high degree of coordination between functional units is necessary for any smooth functioning of the organization and for the achievement of maximum results.

Centralization is preferred over Functionalism as a high degree of coordination between functional units is necessary for any smooth functioning of the organization and for the achievement of maximum results.

How to develop a Centralization Strategy

Identify the key factors of business and rank them in terms of priority

Decide as to which function within the organization will add more value

Assign the management decisions, responsibilities, and authority based on priorities for maximum impact on performance

If a centralized structure is going to be implemented, determine the vertical and horizontal structure of the business

Since the business environment is dynamic, the Centralization Strategy should also be reviewed at regular intervals, and changes made as needed.

Planning and Control play an important part in running any business successfully. A business plan provides a framework for the direction of a business along with methods and tools for achieving better performance. Similarly, control provides the means by which performance can be measured with respect to an organization’s goals and objectives.

Control in addition to planning is important as a defense mechanism as well as a management tool. Control is exercised to check the effectiveness of a plan just as it may also be used to direct and improve the course of an organization’s performance. Without control an organization’s plans may go wrong. If that happens, the business’s performance will also suffer.

Accordingly most businesses incorporate some degree of control into their plans. Sometimes control may involve monitoring, other times it may involve taking a direct and immediate action in response to a given situation.

Control is sometimes used as an important part of planning. The purpose of control, is to provide a means of assessing a manager’s performance. This is done in order to determine if the business has been able to accomplish its strategic objectives

In situations where more than one part of an organization is involved in a particular activity, there is a need for centralization. Centralization allows for the coordinated efforts of functional areas. Centralization increases the efficiency, effectiveness, quality and performance of the organization.

Control can be used along with planning as a means of not only ensuring that a business’s plans are properly implemented, but also to assist the business in assessing its performance.

Control can also be used to monitor the functionality of a business’s strategic plan. In this way it assists a business to re-evaluate its business plans as a function of its performance.

Control can be used as a control strategy because it allows management to communicate their plans to employees and to help employees understand their responsibilities under a business’ strategic plan.

A major purpose of control is to monitor any deviation from the goals and objectives of a business plan. In this way control can be used as a decision-making strategy.

Control can be used to ensure that a business’s employees understand and follow the guidelines of a strategic aid system. In this way control is used as a motivational strategy.

Control can be used as a motivational strategy in situations where there is a great deal of uncertainty and risk management is high. In these instances the primary focus may be on control as risk management tool.

There are three classes of control.

  1. Directive Control
  2. Participative Control
  3. Mutual Control.

Directive Control

Directive control involves monitoring the completed work of employees and requires that the employees follow orders. The managers themselves actually do the work. This method is extensive and time consuming.

Participative Control

Participative Control allows managers and employees to take part in planning the work and in evaluating the completed work. This method involves the use of committees to formulate plans and to evaluate plans and results. This method requires less time to accomplish the work and requires less control effort by the manager.

Mutual Control

Mutual control is a combination of the direct and participative controls.

5 Factors That Predetermine Business Success

The success of business cannot be determined within short period. Many factors come into picture to make a successful business. The main five factors that contribute to the success of the business are:


Quality is the nature of a good that a customer expects when he/she makes a purchase. The quality of a good is a subjective concept that is created upon the expectation of the customer. A quality product or service is very difficult to define.

Quality is the first detail that rings in the minds of all customers and all organizations stay committed to quality. Every organization wants to achieve a certain level of quality in its services so as to do away with the competition. A business may get associated with some brands and processes.

Quality cannot be planned into a product. It has to be built into it in the design stage.


The most important factor of trust is trustworthiness. If you had a confidence in that person, your business would be more secured. A business has to be trustworthy in all respects so as to develop a healthy relationship with the customers.

If an organization is perceived as being honest and trustworthy, it will build a reputation. This perception can be achieved through loyalty and customers’ recommendations. Companies that are perceived as being dishonest lose their credibility with respect to the product and the services they provide.


Great employees are the foundation of any business. A business without an excellent management group is like a car without engine. An organization has to be committed towards developing strong, motivated, hard working employees to achieve maximum success.

Good employees are essential for anyone who are working in the business. A business has to be dedicated to developing hardworking, efficient and loyal employees. Successful businesses attracts excellent employees through quality, trust and good salaries.

The company has to provide employees with good opportunities for growth and development. Employees are more productive when they are committed to your business. Good companies have employee who will not think of leaving your organization.

Mentors and Co-workers

In the world of business where the competition is fierce, a business has to rely totally on its employees.

Business owners and businessmen also need their co-workers support and encouragement to face the challenges. Co-workers and mentors helps to withstand and overcome the challenges of doing business successfully. In a good company, there are co-workers that care about each other like a family.

Strategic Planning for the growth and development of an individual and the business becomes easier when there is support from the top to the bottom.

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