Centralization

When top management is the only one with the authority to make decisions and lower-level
employees are required to obey their superiors, this type of organizational structure is known as
centralization. For small organizations with limited funding and resources, centralization of authority
is crucial.

Example: A person running a Grocery shop appoints a manager, a cleaning staff, a salesperson, and a
helper. The owner delegates the work among the staff according to their skills and positions.

He does, however, still have the final say over decisions pertaining to orders, stock, discounts, offers,
employee pay, vacation time, and raises. In addition, he maintains strict oversight over the staff's
daily tasks and occasionally gives them instructions.

Factors Affecting Authority Centralization:

 Type of Organization:
A centralized system may be used by an organization that is typically a sole proprietorship or
partnership with fewer employees that need to be managed.
 The Organization's Size:
Smaller organizations that operate on a smaller scale can be effectively managed by upper
management by using a centralized system.
 Type of task: Centralization can be used to manage businesses that operate in industries
where specialized knowledge or skills are not necessary.
 Ability to Delegate: Another element that determines the organizational structure is the
management's capacity to assign tasks to subordinates while maintaining control.
 Employee Productivity: If workers are deemed incapable of handling the responsibilities and
accountability of assigned tasks, management will opt to centralize the organization.

Positive aspects of centralization:

Drawbacks to Centralization:
Source: https://theinvestorsbook.com/centralization.html