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Centralisation (British), or centralization (American), is the process by which the activities of an organization, particularly those regarding planning and decision-making, become concentrated within a particular location or group, keeping all of the important decision-making powers within the head office or the center of the organization.
The term has a variety of meanings in several fields. In political science, centralisation refers to the concentration of a government's power – both geographically and politically – into a centralised government. In neuroscience, centralisation refers to the evolutionary trend of the nervous system to be partitioned into a central nervous system and peripheral nervous system. In business studies, centralisation and decentralisation refer to where decisions are made in the chain of command.
- 1 Centralisation in politics
- 2 Centralisation in economy
- 3 Centralisation in business studies
- 4 References
- 5 See also
Centralisation in politics
Centralisation of authority: The systematic and consistent concentration of authority at a central point or in a person within the organisation.(Acharya, 2012)
This idea was first introduced in the Qin Dynasty of China. The Qin government was highly bureaucratic, and was administered by a hierarchy of officials, all serving the First Emperor, Qin Shi Huang.(Ancientmilitary.com, 2012) The Qin Dynasty practiced all the things that Han Feizi taught, allowing Qin Shi Huang to own and control all his territories, including those conquered from other countries. Zheng and his advisers ended feudalism in China by setting up new laws and regulations under a centralised and bureaucratic government, with a rigid centralisation of authority. Under this system, both the military and government thrived, because talented individuals might be more easily identified and picked out to be trained for specialised functions.(Bachman et al., 2007).
- The monarchical power is the supreme power in the empire. The emperor monopolises all the resources in the country; his personality and abilities decide the prosperity of the country. This autocratic system allows for faster decision-making, and avoids complex solutions to problems that arise. One disadvantage is that courtiers, who compete for the emperor's favor, are able to amass power for themselves, leading to internal strife.(Jin and Liu, 1992)
- The administrative department has highly centralised power. The duties of each bureaucratic occupation are not clearly defined, leading to inefficiencies as functionaries manage the government and effectively rule the country.
The acts for the implementation are needed after delegation. Therefore, the authority for taking the decisions can be spread with the help of the delegation of the authority.
The centralisation of the authority can be done immediately, if complete concentration is given on the decision-making at any position. This concept is generally referred to as the centralisation of the authority. The centralisation can be done with a position or at a level in an organisation. Therefore, the extension of the organisation is referred to as the centralisation of the authority. And the decision-making power must be hold in a few hands.(Singh, 2015)
- Time-saving - very high speed.
- Responsibility is well defined.
- Depends largely on the general consensus.
- Decision making is very direct and clear.(Singh, 2015)
- Decisions may be misled while passing on and lower position departments don't have the decision-making power, therefore it requires efficient and well-organised top department.
- Attentions and support on each department or cities may not be balanced.
- Delay of work information may result in inefficiency of the government.
- Discrepancies in economy and information resources between centre and other places are significant. (Fujii, 2010)
Centralisation in economy
Relationship between centralisation (i.e. concentration of production) and capitalism
As written in V.I. Lenin’s book, Imperialism, the Highest Stage of Capitalism, “ …the remarkably rapid concentration of production in ever-larger enterprises are one of the most characteristic features of capitalism.”(Lenin, 1939), he researched on the development of production and decided to develop the production in a centralised way, from individual and scattered small workshops into large factories, leading the capitalism to the world; when concentration of production develops into a particular level, it will become monopoly, like party organisations of Cartel, Syndicate and Trust.(Lenin, 1939)
- Cartel - In economics, a cartel is an agreement between competing firms to control prices or exclude entry of a new competitor in a market. It is a formal organisation of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics.(O'Sullivan and Sheffrin, 2003)
- Syndicate - A syndicate is a self-organising group made up of individuals, companies, corporations or entities formed to transact some specific business, to pursue or promote a shared interest.
- Trust - “A trust is . . . simply the case of one person holding the title of property, whether land or chattels, for the benefit of another, termed a beneficiary. Nothing can be more common or more useful. But the word is now loosely applied to a certain class, of commercial agreements and, by reason of a popular and unreasoning dread of their effect, the term itself has become contaminated. ”(Theodore, 1888)
Centralisation in business studies
Where decision-making power resides in the structure is an organisational issue that a business ought to address.
Decision-making is the reveal of authority. The key question is either whether authority should manage all the things at the centre of a business (centralised), or whether it should be delegated far away from the centre (decentralised).
The choice between centralised or decentralised is various. Many large businesses necessarily involve a e of extension of centralisation and some extent of centralisation when it begins to operate from several places or any new units and markets added.(Riley, 2014)
Features of centralisation in management
- Top level managers concentrate and reserve the decision-making power.
- Execution decided by the top level management with the help from the other levels of management.
- Lower levels management do the jobs which directed and controlled by the top managers.(BMS Team, 2013)
Advantages of the centralisation in business studies
- Centralisation Is Suitable For Small Firms - Managers are easy to look after overall activities personally.
- Centralisation Facilitates Unified Decision - All decisions made by top managers, gathering all subordinates’ decisions and make them in a final one.
- Centralisation Simplifies Structure - The structure is simple and clear, involving two levels - managerial and operating levels. Managerial level is responsible for decision-making whereas operating level is responsible for execution.
- Centralisation Facilitates Quicker Decision - One make final decision and others provide suggestions and professional help, time-saving.
- Economy In Operation - Minimising the operation cost by laying off the amount of managers and utilising the skilled, qualified and experienced members effectively.
- Centralisation integrates Operation - One decision control over the whole employees.(Accountlearning.blogspot.co.uk, 2013)
Disadvantages of the centralisation in business studies
- Unsuitable for large organisation - Difficulty in communicating managerial decisions to different operating levels in the management system, which means top managers may not effectively supervise and control all the activities of the organisation.
- Managers are overburdened - Top manager is the centre of the organisation and worries about each and every activity in the organisation, which tends to decrease working efficiency of the organisation.
- Possibility of power misuse - If top managers lack enough skills and abilities, they may exercise their powers on the basis of their personal judgement, leading to misuse of authority.
- Low morale motivation - Middle and lower level managers may feel passive while doing their assignments as their personality and ability may not be expressed. The lack of motivation leads to the morale of subordinates.
- Lack of environmental adaptation - Lack of sufficient flexibility in the dynamic business environment
- Inappropriate for routine decision - Top managers can only devote most time in taking routine decisions and not available for deciding the non-programmed part.(Accountlearning.blogspot.co.uk, 2013)
- Acharya, A. (2012). What are the advantages and disadvantages of centralization of authority ?. [online] Preservearticles.com. Available at: http://www.preservearticles.com/201101143291/advantages-and-disadvantages-of-centralisation-of-authority.html [Accessed 4 Nov. 2015].
- Ancientmilitary.com, (2012). Ancient China Government. [online] Available at: http://www.ancientmilitary.com/ancient-china-government.htm [Accessed 5 Nov. 2015].
- Bachman, D., Bickers, R., Carter, J., de Weert, H., Elders, C., Entenmann, R. and Felton, M. (2007). World and Its Peoples: Eastern and Southern Asia. New York: Marshall Cavendish, p.36.
- Jin, G. and Liu, Q. (1992). The Cycle of Growth and Decline - On the Ultrastable Structure of Chinese Society: Chapter 7. 2nd ed. Hong Kong: The Chinese University Press.
- Singh, K. (2015). What is Centralization and De-Centralization of the Authority? | Total MBA Guide. [online] Mbaofficial.com. Available at: http://www.mbaofficial.com/mba-courses/principles-of-management/what-is-centralization-and-de-centralization-of-the-authority/ [Accessed 4 Nov. 2015].
- Fujii, G. (2010). 藤井厳喜WEBサイト | Fujii's Focus For Future 公式ブログ. [online] Gemki-fujii.com. Available at: http://www.gemki-fujii.com/blog/2010/000641.html [Accessed 4 Nov. 2015].
- Lenin, V. (1939). Imperialism, the highest stage of capitalism. New York: International Publishers, pp.12-54.
- O’Sullivan, A. and Sheffrin, S. (2003). Economics. Needham, Mass.: Prentice Hall, p.171.
- Theodore, D. (1888). "The Legality of "Trusts"". Political Science Quarterly, 3(592).
- Riley, J. (2014). Centralised versus decentralised structures | Business | tutor2u. [online] Beta.tutor2u.net. Available at: http://beta.tutor2u.net/business/reference/centralised-versus-decentralised-structures [Accessed 5 Nov. 2015].
- BMS Team, (2013). Important Features of centralization | BMS.co.in. [online] BMS.co.in : Bachelor of Management Studies. Available at: http://www.bms.co.in/important-features-of-centralization/ [Accessed 5 Nov. 2015].
- Accountlearning.blogspot.co.uk, (2013). Advantages Of Centralization | Accounting-Management. [online] Available at: http://accountlearning.blogspot.co.uk/2013/05/advantages-of-centralization.html [Accessed 5 Nov. 2015].
- Accountlearning.blogspot.co.uk, (2013). Disadvantages Of Centralization | Accounting-Management. [online] Available at: http://accountlearning.blogspot.co.uk/2013/05/disadvantages-of-centralization.html [Accessed 5 Nov. 2015].
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