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Centralization

Centralization

Definition

Centralization refers to the process by which formal authority and decision-making are confined at one central location. In most centralized organizations, formal authority and decision-making powers are concentrated at the top management levels. Once the decision is made at the top levels, the subordinates are expected to act upon it as per the top managers’ direction. For example, in a sole proprietorship business, the owner of that business has all the powers to decide on the daily operations and therefore passes the decision made to his employees. These employees are expected to act upon those instructions as directed by the manager. (Varghese et al., 2017)

Summary

Factors such as the nature of the organization, size of organization, and nature of the task determine the degree of centralization. Small scale organizations tend to have centralized system of management. Sole proprietorship or partnership businesses also tend to go for centralization. Organizations which engage in tasks that do not require much specialization are majorly centralized. (Moller&Rimscha, 2017)

Centralized organizations enjoy the advantage of proper coordination where the top management comes up with a uniform policy for all subordinates and integrates it among everyone. They also enjoy reduced cost on office and administrative costs since they do not need to spend much on hiring experts. Since subordinates are answerable to top management, they aim to improve the quality of work, which leads to standardization of work processes and reduces wastage. (Arnold, 1999)

There are also a couple of shortcomings of centralization. There is delay in decision making as all decisions must be taken by the top management alone, thus not good in handling emergencies. It causes overburden to the top management, thus little or no time to think on business expansion or growth. Employees here experience low morale as they are not engaged in the decision-making process.

In conclusion, centralization is both beneficial and challenging as well. It is therefore not suitable for all types of businesses. For an organization to grow, it needs to engage all its levels in its decision-making process to inspire and motivate the employees to perform better.

References

Arnold, U. (1999). Organization of global sourcing: ways towards an optimal degree of centralization. European Journal of Purchasing & Supply Management5(3-4), 167-174.

Varghese, J., Edward, M., & George, B. P. (2017). Centralization of authority, market orientation, and customer relationship management in the banking sector: a study in India. Management and Economics Review2(1), 90-100.

Möller, J. E., & Rimscha, M. (2017). (De) centralization of the global informational ecosystemMedia and Communication5(3), 37-48.

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