Shawn has a masters of public administration, JD, and a BA in political science.
In this lesson, you will learn what a centralized organization is. You will also learn about some of its key features, its advantages and disadvantages, and look at an example.
What Is a Centralized Organization?
A centralized organization is structured by a strict hierarchy of authority where most decisions are made at the top by one or a few individuals. Information from lower levels flows up to the decision-maker where the information is analyzed and synthesized to gain a broader perspective in order to aid in decision-making. Information flows down to provide directions to the lower levels of the hierarchy where lower levels are expected to implement the decisions with little or no modifications. Examples of organizations utilizing a centralized structure include the U.S. Army and large corporations.
A centralized organizational structure provides some significant advantages to an organization. Centralization can provide a good deal of efficiency in time and resources because a high degree of coordination is possible with decision-makers at the top coordinating all activities of the organization. This coordination prevents unnecessary duplication of efforts and permits the decision-makers to allocate tasks among various components of the organization in an efficient manner. Centralization can also aid in better decision-making because information flows up from all levels of the organization to the decision-makers at the top. This gives the decision-maker a great deal of information to get a handle on the 'big picture' needed for making the best decisions.
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A centralized organization does present some significant disadvantages. The hierarchical nature of the organization often hinders innovation and creativity. Individuals on the ground do not have the ability to make decisions, even though they probably have the best perspective on issues and challenges facing the organization necessary for creative problem solving. Centralized organizations may take a long time to change and adapt because it takes time for information to filter up to the top of the organization, for the information to be processed, for a decision to be made, and for the orders to be filtered down throughout the organization. Adaptation and change may also be a problem if the few decision-makers able to authorize change are unwilling to do so.
Let's look at an example. Let's say that you are the president of a large software company that employs about 5,000 employees that are spread over three separate divisions, which are further broken down into departments, units, and teams. Over the last three quarters, the revenue from your most profitable business productivity software has declined. You have ordered the vice presidents of marketing, production, and research and development to submit reports. You analyze all the reports and start to get a picture of the problem. You make a decision on what needs to be done and send out a memo to the vice presidents instructing them how to proceed. They, in turn, will direct their subordinates how to proceed and so on down to the lowest level necessary for the implementation of your orders.
Let's review. A centralized organization is an organization that uses a hierarchy of authority, where information flows to the top for analysis, and orders flow from the top to the bottom, where lower-levels must take actions consistent with the orders. A centralized organization has certain advantages such as efficiency, effective coordination, and a good ability to gain a broad perspective for effective decision-making. On the other hand, a centralized structure does present certain disadvantages such as a slow reaction time and a tendency to present obstacles to creativity, innovation, and adaptation.
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