What is centralization?

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

1. 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 put more simply, when all power or all obligations tend to fall into 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 nuclei of power, responsibility or processing , which have many entrances and a few (or one) exit, thus creating a convergence. This can happen in many human and even biological spheres, since a centralized management of resources can be, on certain occasions, much more efficient than a dispersed one.

For example, centralist governments are those who prefer a unique and hegemonic center of power from which to govern the rest of the country, rather than a tendency towards dispersion and autonomy such as that proposed by the decentralization of federal or federative governments. In the business sphere, similarly, there is talk of centralization when the lower instances in the business hierarchy transfer their administrative authority to a higher instance, that is, they converge on the same headquarters or supervision.

2. Types of centralization

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

• Centralization of performance. Applies to geographic and operational centralizations within an organization, as would be the case of a company that locates all the personnel of a given process in one of its headquarters, or that channels all the applications of a given region through a branch .
• Department centralization. It occurs when an organization builds specialized departments or coordinations, to which it will go to systems will take care of all the computer and technological requirements of the rest of the company.
• Management Centralization It strictly concerns decision-making , focused on high-level management or some type of management dome, which also manages communications towards team or department leaders, thus having full and centralized control of the company.

3. 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, given that decision nuclei or processing of the different tasks are created, preventing the work from being duplicated, repeated or repeated. They disperse. All centralization generates hierarchies and establishes leadership dynamics , so it is an ideal system for strong leaders.

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

4. Disadvantages of centralization

Centralization also has its disadvantages, especially in regard to the dependence between the core and the periphery regarding decision making and information processing. It is usual in centralized models that appear “bottlenecks”, that is, funnel dynamics in which the input of a department is far superior to its processing or decision-making capacity, but since everything is centralized, no one else can vent the pending work volume. This causes delays and sabotages productivity time .

Another risk of centralization has to do with despotism or excessive rigidity in the hierarchy , thus generating authorities on which everything falls. This reduces the junior staff to the mere follow-up of orders or instructions, forcing them to wait for a response from management that usually takes, and that is often required quickly, for immediate decision making. Bureaucracy is usually a consequence of excessive centralization.

5. Example of centralization in a company

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

In return, however, there will be a noticeable increase in business bureaucracy, since all communication and all documents must also be sent to the new management , which in turn will issue new documentation to convey its decisions. In addition, there will be a 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.

6. Decentralization

The decentralization is logically the opposite process centralization, that is, the tendency to give freedom of action and independence in their procedures to the various units of an organization , such as coordination 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 federal governments , which consist of the union of equals between the different states or departments that make up the country.