This article has multiple issues. Please help improve it or discuss these issues on the talk page. (Learn how and when to remove these template messages)
Centralisation or centralization (see spelling differences) is the process by which the activities of an organisation, particularly those regarding planning and decision-making, framing strategy and policies become concentrated within a particular geographical location group. This moves the important decision-making and planning powers within the center of the organisation.
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.
Centralisation in politics
Centralisation of authority is defined as the systematic and consistent concentration of authority at a central point or in a person within the organization. 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. The Qin Dynasty practised 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 centralized and bureaucratic government with a rigid centralization of authority.
- The monarchical power is the supreme power in the empire. The emperor monopolizes 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 centralized 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 authority can be done immediately, if complete concentration is given at the decision-making stage for any position. The centralisation can be done with a position or at a level in an organisation. Ideally, the decision-making power is held by a few individuals.
Centralisation of authority has several advantages and disadvantages. The benefits include:
- Responsibilities and duties are well defined within the central governing body.
- Decision-making is very direct and clear.
- The central power maintains a large "encompassing interest" in the welfare of the state it rules since it stands to benefit from any increase in the state's wealth and/or power. In this sense, the incentives of state and ruler are aligned.
Disadvantages, on the other hand are as follows:
- Decisions may be misunderstood while being passed on and lower position departments do not have the decision-making power, therefore it requires an efficient and well-organized top department.
- Attention and support for each department or city may not be balanced.
- Delay of work information may result in inefficiency of the government.
- Discrepancies in the economy and information resources between the centre and other places are significant.
- Excludes actors at the local and provincial levels from the prevailing system of governance, reducing the capacity of the central government to hold the authority accountable (with risks of corruption), resolve disputes or design effective policies requiring local knowledge and expertise.
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." He researched the development of production and decided to develop the concept of production as a centralised framework, from individual and scattered small workshops into large factories, leading the capitalism to the world. This is guided by the idea that once concentration of production develops into a particular level, it will become a monopoly, like party organisations of Cartel, Syndicate, and Trust.
- 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.
- 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."
Centralisation in business studies
Most businesses deal with issues relating to the specifics of centralisation or decentralisation of decision-making. The key question is either whether the 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 varies. Many large businesses necessarily involve some extent of decentralisation and some extent of centralisation when it begins to operate from several places or any new units and markets added.
According to a 2021 study, "firms that delegated more power from the central headquarters to local plant managers prior to the Great Recession outperformed their centralized counterparts in sectors that were hardest hit by the subsequent crisis."
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 their jobs under direct control of the top managers.'
- Centralization (phonetics)
- Political unitarism
- Nueva Planta decrees – a series of centralizing royal decrees issued in Spain in the early 18th century
- 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].
- Olson, Mancur (1993-01-01). "Dictatorship, Democracy, and Development". The American Political Science Review. 87 (3): 567–576. doi:10.2307/2938736. JSTOR 2938736.
- Sawyer, Amos (2004-09-01). "Violent conflicts and governance challenges in West Africa: the case of the Mano River basin area". The Journal of Modern African Studies. 42 (3): 437–463. doi:10.1017/S0022278X04000266. ISSN 1469-7777. S2CID 154954003.
- Shleifer, Andrei (2002). "The grabbing hand: Government pathologies and their cures". Cite journal requires
- 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].
- Aghion, Philippe; Bloom, Nicholas; Lucking, Brian; Sadun, Raffaella; Van Reenen, John (2021). "Turbulence, Firm Decentralization, and Growth in Bad Times". American Economic Journal: Applied Economics. 13 (1): 133–169. doi:10.1257/app.20180752. ISSN 1945-7782. S2CID 234358121.
- 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].