Centralized authority refers to an organizational management structure where most of the major decision-making power and authority rests in the hands of a concentrated group of leaders. Often, this team of executives works in a company headquarters or main office. Centralized authority helps you concentrate power in the hands of key experts and can improve consistency in decision-making, but it does also have drawbacks relative to decentralized authority where front line managers have more power.

Local Inefficiency

Centralization can lead to significant delays in decisions that impact local business units. Local weather issues, city council decisions, community action and store issues are just a few potential events that could prompt an urgent reaction. For local managers with limited authority, the rapid response time to some of these challenges can be a problem and sometimes escalate the issues. Highly centralized authority may require local managers to contact a top leader in many situations where time is of the essence.

Limited Commitment

When "big bosses" at a central office direct front line managers and employees, the level of loyalty is often limited. Managers commonly prefer to have more authority over day-to-day decisions and store operations. When they function more as figurehead leaders, their leadership role in the eyes of employees may be limited. Employees at local units are even more disconnected from top executives. If they have loyalty, it is typically to the local manager who likely lacks the authority necessary to make important decisions on pay, rewards and day-to-day activities.

Poor Creativity

An overly top-down organizational approach naturally prohibits creative thinking and innovative ideas from front line levels. More decentralized companies often promote new product and service ideas conceived by regular employees and conveyed through their managers to the top. When there is a major distance in involvement between centralized leaders and front line employees, there is little motivation for employees to ponder improvements or solutions, let alone communicate them internally. Sales and service employees normally have the most direct contact with customers and clients, and centralized authority may deter their ability or willingness to share customer thoughts or experiences.

Resistance to Change

Change is stressful for both individuals and companies. However, it is necessary for companies, in many cases, to move forward or react to market evolution ahead of competitors. Centralized authority usually means most of the ideas and policies are thought up and discussed in a small circle of leaders. This prohibits interjection of new blood or new ways of viewing things that contribute to effective organizational changes. A more decentralized approach where leadership is spread out across the company may lead to a broader compilation of perspectives on business direction and operations.