Centralised Organisation: Definition And Advantages

Indeed Editorial Team

Updated 15 October 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Successful companies have an organisational structure that outlines processes, responsibilities, lines of communication and authority. This structure contains an employee hierarchy in which each level manages the levels under them. Selecting a suitable management structure can help enhance productivity. In this article, we define the centralised organisation, discuss its benefits and challenges and explain the differences between organisations with centralised and decentralised structures.

What Is A Centralised Organisation?

A centralised organisation is a hierarchical structure for making decisions in which the upper management implements all processes and decisions. Rarely do junior-level managers and employees make decisions without executive approval. In a centralised structure, a company's upper management or owners make all decisions, including those regarding daily operations. They develop policies that team members can use to enhance their performance. Many organisations prefer centralised structures because a clear chain of command increases transparency, improves work efficiency, reduces management costs and focuses on achieving the organisation's objectives.

Related: What Is An Organisation? (Characteristics And Structures)

Benefits Of A Centralised Structure

Here are some benefits of an effective centralised structure:

Transparent chain of command

A mostly centralised structure benefits from a transparent chain of command because all employees know who to report to at work. For example, junior employees know whom to approach within the organisation's hierarchy if they have any doubts or queries. Senior executives also have a proper strategy for giving instructions to junior employees and mid-level managers, ensuring implementation swiftly and in accord.

Related: What Is Organisational Culture?

Focused vision

Organisations that rely on a culture of centralised management can concentrate properly on achieving their visions. Executives can easily convey the organisation's vision to employees and assist them in achieving it because the communication channels are straightforward. They can distribute information rapidly and consistently to employees in a successful centralised administration to increase workplace productivity. The executives can also issue consistent directives to stakeholders, including community members, customers and suppliers.

Reduced costs

Generally, centralised structures adhere to standard procedures that help control their organisations and reduce administrative and office expenses. The primary decision-makers work from within the executive's headquarters or offices. So, there is no requirement to establish administrative divisions within the organisation. Since crucial decision-making is at executive offices, centralised businesses do not require specialists to operate in their branches, further reducing costs. The precise command chain depends on a single administrative direction and no transmission of duplicate information. This reduces duplication of work and saves costs.

Fast implementation of rational decisions

It is easier to implement executive decisions and communicate with lower-level employees and managers in a centralised structure. When only a few people make decisions, employees rarely dispute previous instructions. Instead, they promptly carry out the directives from the executive administration.

Related: Why Is Human Resources Important To Every Organisation?

Improved quality of work

In a centralised structure, better supervision and standardised procedures guide the entire management structure and improve work quality. Every department has a manager who focuses on recognising high-quality and uniform outcomes. Using the latest technologies and advanced equipment helps ensure quality and reduces waste from labour-intensive work. Standardisation can also reduce the duplication of tasks with high production costs.

Related: Top 10 Management Challenges And How To Overcome Them

Expert guidance

A centralised management structure helps an organisation's decision-makers to provide clear, strategic commands and manage business operations. As a result, company owners can rely on less-experienced employees to help them save costs. Businesses with a significant proportion of entry-level employees can rely on centralised management culture to succeed because their managers deliver executive orders based on extensive experience, helping the organisation enhance its productivity and meet its objectives.

Challenges In The Centralised Management Structure

Although a centralised management structure has many benefits, it may also experience the following challenges:

Bureaucratic leadership

In a centralised management structure, you may find that management reflects authoritarian leadership, where junior employees perform their roles and deliver quality outcomes according to the duties their supervisors assign them. In this structure, employees may work harder to contribute to the organisation's decision-making process. In a workplace where only upper management implements organisational decision-making, employees follow their immediate manager's orders. Employees can also interact with executive management to share their ideas by writing letters, sending e-mails or asking questions during employee meetings.

Related: What Is Authentic Leadership? (Plus How To Practise It)

Remote control

Executives may feel pressure to communicate decisions in a centralised management structure, but they may also lose control over the implementation. When executives do not decentralise an organisation, they may increase workloads requiring immediate attention for its growth. Employees might lose focus on the organisation's goals if executives lack time to oversee how employees implement decisions. This lack of oversight could mean that a centralised structure's executives make many decisions that employees disagree with or implement poorly.

Leaders can delegate some of their supervisory responsibilities to mitigate this issue, such as passing regular performance reviews to middle management to help ensure everything runs smoothly.

Delays at work

A centralised structure can cause delays in the workplace as executives pass orders to employees and then wait for a response at the head office. It can take time for instructions to travel to and from executive offices and since employees rely on communication, they may delay executing them. Productivity can suffer if employees delay their duties because of a long wait for directions guiding them on how to perform new tasks.

Executives can solve this problem by creating a clear, streamlined protocol for situations when employees require a fast response to an issue. Organisations can also support employees by allowing them to make judgement calls when there is no time to wait for an official decision.

Slow decision implementation

Centralised management may necessitate the approval of many intermediaries before finalising a decision. Incomplete tasks in the executive offices can create a backlog and hinder the implementation of decisions. In a world where change occurs rapidly, it is important for management teams to understand the importance of a temporary management structure to devise quick solutions to organisational issues, helping the team to implement plans and maintain or increase productivity.

Related: Important Decision-Making Skills: Definition And Examples

Differences Between Centralised And Decentralised Organisations

Decentralised and centralised are two types of organisational management structures. In a centralised management structure, the decision-making and planning power belongs only to the executives or upper management. Decentralised organisations distribute power from upper to low-level or middle management. In a decentralised management structure, executives, mid-level employees and even entry-level employees all participate in planning and making informed decisions to improve the organisation.

Here are some other differences between centralised and decentralised organisations:

Involvement and power

In a centralised business, only the executive administration has the authority to make decisions. This structure provides consistency and a clear delineation of authority within the organisation. It may work well in an organisation that motivates employees to meet their goals on time and increase the organisation's productivity.

Decentralised businesses delegate varying degrees of authority to different levels of management, with employees at each level responsible to those above them. Mid-level managers have some executive responsibilities in this type of organisation. This systematic distribution of authority increases participation in decision-making processes. Consequently, employees may feel more involved in the organisation.

Related: Centralisation Vs Decentralisation: Differences And Benefits

Communication flow

The communication flow is vertical in a centralised management structure. This means that the executives who make all the decisions and strategies issue orders to junior-level employees. The executives ensure that employees receive instructions promptly and work diligently to execute them on time.

The management culture in decentralised businesses is transparent. The executives include middle and lower management in planning and decision-making. This structure allows employees to make plans and use innovative ideas to enhance their performance and workplace productivity.

Related: What Are Channels Of Communication? (Importance And Types)

Agility and productivity

The decision-making process is slow in a centralised management structure since only the organisation's upper management makes decisions. This can cause an organisation to be less adaptable to common obstacles. In this structure, employees develop strategies to help them perform their responsibilities and meet the organisation's goals on time, but executives make the final decisions.

The decentralised management structure facilitates a faster decision-making process and increases employee performance and workplace productivity. Differently positioned team members can make plans and decisions to improve the organisation.

Related: What Are Organisation Skills? (Plus How To Improve Them)

Ideal organisation size

A centralised management structure is suitable for small and large businesses, where owners give clear instructions to improve their businesses, have the time to involve themselves in day-to-day operations and monitor how team members carry out instructions. The management structure in decentralised organisations is suitable for larger organisations, where executives may be too busy to manage daily operations. In a decentralised management structure, other employees have management responsibilities, make decisions and contribute to the organisation's advancement.

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