What Are the Advantages & Disadvantages of Centralized Management?

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Centralized management is simplified management. The top-tier staff makes all critical decisions, and lower-level workers have clear protocols to follow. Decentralized management is messier and more complex, with no road map and no absolutes, but more autonomy and room for staff at all levels to grow and learn. The advantages and disadvantages of centralization depend on company culture, type of business and the individual personalities at play.

Proves a Clear Chain of Command

A centralized management system offers the advantage of a clear chain of command. As an employee, you know who to approach with questions and concerns. As a boss, you can count on a framework where your word is the final word. This clarity is advantageous when your business needs to make important decisions quickly and react to a situation as a unified organism. But the clarity of centralized management puts your company at a disadvantage in situations that aren't entirely clear, and need to be approached with finesse and first-hand information. Top-tier managers may know that using a particular material saves purchasing dollars, but they may not know that it smells bad or is difficult to manipulate, creating extra unnecessary labor expense.

Builds Employee Skills

Employees working in a centralized management system have the advantage of being trained for very specific and dedicated tasks. Whether you operate a crane or perform data entry, you may not need to know more about broader company operations than what's strictly necessary for you to complete your job. If you don't have to think about the bigger picture, you may have more time and energy to excel in your particular niche. However, routine and compartmentalized work can be a disadvantage for employees interested in new challenges and ongoing learning. They'll likely feel stifled by a management system that discourages autonomy and building new skills.

Striking a Careful Balance

One of the purposes of management is to centralize knowledge and decision making so a company can operate as a unified whole. Even in a decentralized system, there needs to be a way for different arms of a business to come together and consider the bigger picture. And any company, no matter how centralized, must trust its workers to make some autonomous decisions. Fast-food workers make the final call on whether an order is ready to serve so the quality of the food depends on their sound judgment, even if all of the steps and recipes they follow are clearly laid out at the corporate level. Sound business practices require a careful balance of centralization and decentralization, which will be different for every business, and may even be different for the same business on different days.

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About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.