Centralized control in a business means authority and decision-making responsibilities are concentrated in the hands of a few key leaders. While this approach to operations has benefits, including expertise and consistency, it also has drawbacks relative to a more decentralized setup where local business unit leaders make decisions.
Centralized control limits the rapid responsiveness and flexibility of local managers. If customer demands change or local economic conditions dictate changes in operations or marketing, centralization normally requires local managers to communicate with people at the top. This can anger local customers and community members. If a local store, for instance, is involved in a controversial activity, a centralized approach makes it difficult for local managers to deal with backlash. Delays also can limit timely customer service.
Highly centralized companies limit the responsibilities of local managers. For managers who want a high degree of importance in their role, this can be demoralizing over time. Some store managers, for instance, don't get to hire their own employees in a centralized company. They have to wait for district or regional managers to interview prospects. This can delay the hiring process, which is a problem for managers in desperate need of help.
Another problem with concentrating most decisions at the top is limited development of upcoming managers. If current company leaders experience health issues or other life events that prohibit their ability to carry on, they may not have viable candidates that have been developed. Local managers don't get the experience of making key decisions and learning how to fine tune them over time.
Local business managers and employees face a larger virtual distance from management in a centralized structure. This inhibits the ability for people that interact the most with your customers to offer feedback and perspective on what customers want and what corrections are needed on the front lines. Front-line employees may actually give up on trying to offer feedback if they find that their suggestions fall on deaf ears or they have no way to connect with company leaders to offer insight.
