Centralized management

Centralized management
See also
Tall organization Matrix of responsibility Team structure Project management office Self managed team Distributed cost Management theory Participatory management Subsystem

Centralized management is a system of management in which decision-making power rests with one individual or a small group of individuals that act on behalf of the organization. It is the opposite of decentralized management, where decision-making power is distributed across multiple departments or locations. Centralized management can lead to efficiency and cost savings, as well as greater control over the organization's resources. On the other hand, it can lead to a lack of accountability and a lack of innovation.

Example of Centralized management

Centralized management is often seen in large corporations, where the CEO or board of directors is responsible for making strategic decisions. For example, a large corporation may have a CEO who is responsible for allocating resources, making decisions about new products, and setting the company's overall strategy. Other departments, such as marketing, finance, and operations, will then work to implement the CEO's decisions.

In summary, centralized management is a system of management in which decision-making power rests with one individual or a small group of individuals. This system can lead to improved efficiency, cost savings, and greater control, but it can also lead to a lack of accountability and innovation. Centralized management is often seen in large corporations, where the CEO or board of directors is responsible for making strategic decisions.

When to use Centralized management

Centralized management is best suited for organizations that need to respond quickly to changing market conditions, require a greater level of control over their resources, or are looking to cut costs. It can also be beneficial in organizations that have a more hierarchical structure, where decision-making power is concentrated at the top. Organizations should consider the advantages and disadvantages of centralized management before making a decision, as it is not always the right fit for every organization.

Types of Centralized management

Centralized management can take a number of different forms. Some of the most common types include:

• Hierarchical centralized management: This type of centralized management is based on a hierarchical structure, with one individual or group at the top making all the decisions. This is the most common type of centralized management and is often seen in large corporations and government organizations.
• Autocratic centralized management: Autocratic centralized management is a type of centralized management where decisions are made unilaterally, without any consultation with other team members. This type of centralized management can be beneficial in times of crisis, but can otherwise lead to poor decision-making.
• Bureaucratic centralized management: This type of centralized management is based on a complex bureaucracy, with multiple layers of decision-making. This can lead to greater accountability and oversight, but can also be slow and inefficient.

Steps of Centralized management

Centralized management typically involves six steps:

• Defining the organization's goals and objectives: The first step is to define the organization's objectives and goals, which will inform the decision-making process.
• Identifying the decision maker: The second step is to identify the individual or small group of individuals who will be responsible for making decisions on behalf of the organization.
• Developing policies and procedures: The third step is to develop policies and procedures that govern how decisions are made and how resources are allocated.
• Establishing communication protocols: The fourth step is to establish communication protocols between the decision maker and other departments or locations.
• Monitoring progress: The fifth step is to monitor progress and ensure that decisions are being implemented in a timely manner.
• Evaluating results: The sixth and final step is to evaluate the results of the decisions and make adjustments as necessary.

In summary, centralized management typically involves six steps: defining the organization's goals, identifying the decision maker, developing policies and procedures, establishing communication protocols, monitoring progress, and evaluating results. These steps help ensure that decisions are being made in a timely and effective manner.

Advantages of Centralized management

The advantages of centralized management include:

• Improved efficiency: Centralized management allows for a more streamlined approach to decision-making and resource allocation, as all decisions are made by one person or a small group. This can reduce time wasted in communication between departments and increase the organization's ability to respond quickly to changes in the market.
• Cost savings: Centralized management can lead to reduced overhead costs, as decision makers are already in place and don't need to be hired or trained. It can also lead to increased profitability, as resources are allocated more efficiently.
• Greater control: With centralized management, the decision maker has greater control over resources, allowing them to make more strategic decisions. This can be beneficial in industries or markets where quick decisions are necessary.

Disadvantages of Centralized management

The disadvantages of centralized management include:

• Lack of accountability: With centralized management, there is often a lack of accountability as the decision maker is not held accountable for their decisions. This can lead to poor decision-making and a lack of transparency.
• Lack of innovation: Centralized decision-making can stifle creativity and innovation, as the decision maker is not necessarily aware of the latest trends or ideas. This can lead to the organization missing out on opportunities to develop new products or services.
• Inflexibility: Centralized management can be inflexible, as decisions are made from one source. This can make it difficult to adapt to changes in the market or respond to customer feedback.

Limitations of Centralized management

Centralized management has a few notable limitations that organizations should take into account. These include:

• Unbalanced decision-making: With centralized management, the decision-making power rests with one individual or a small group of individuals. This can lead to unbalanced decision-making, as other perspectives and points of view are not taken into account.
• Poor communication: With centralized management, communication between departments can be limited or non-existent, as decisions are made without consulting other departments. This can lead to a lack of understanding and cooperation between departments.
• Inflexibility: As decisions are made from one source, centralized management can be inflexible and slow to respond to changes in the market.

Other approaches related to Centralized management

Besides centralized management, there are other approaches to management that organizations may consider. These include decentralized management, which involves distributing decision-making power across multiple departments or locations; participative management, which involves involving employees in decision-making; and matrix management, which involves combining both centralized and decentralized management principles.

In summary, there are a variety of management approaches that organizations may consider, including centralized, decentralized, participative and matrix management. Each has its own advantages and disadvantages, and organizations should carefully consider which approach would be best for their business.

Suggested literature

• Afsharian, M., Ahn, H., & Harms, S. G. (2021). A review of DEA approaches applying a common set of weights: The perspective of centralized management. European Journal of Operational Research, 294(1), 3-15.
• Fang, L. (2022). Measuring and decomposing group performance under centralized management. European Journal of Operational Research, 297(3), 1006-1013.
• Nagarathinam, S., Vasan, A., Ramakrishna P, V., Iyer, S. R., Sarangan, V., & Sivasubramaniam, A. (2015, November). Centralized management of HVAC energy in large multi-AHU zones. In Proceedings of the 2nd ACM International Conference on Embedded Systems for Energy-Efficient Built Environments (pp. 157-166).