Centralization is the process by which the activities of an organization, particularly those regarding planning and decision making, become concentrated within a particular location and/or group.
The term has a variety of meanings in several fields. In political science, centralization refers to the concentration of a government's power, both geographically and politically, into a centralized government. In neuroscience, centralization refers to the evolutionary trend of the nervous system to be partitioned into a central nervous system and peripheral nervous system. In business studies, centralization and decentralization refer to where decisions are made in the chain of command.
Centralization is the concentration of span of control, decision making, and communication within an organization.
In a centralized organization, the decisions are made by top executives or on the basis of pre-set policies. These decisions or policies are then enforced through several tiers of the organization after gradually broadening the span of control until it reaches the bottom tier.
Centralized organizations typically require that communications flow through a central person or location. In centralized organizations individual leaders play a prominent role and have a great deal of decision-making power. Leaders in centralized organizations have greater access to information and, therefore, can exercise more influence over group members by controlling the flow of critical information.
One of the distinct advantages to the centralized approach to organization and management is that it allows for greater control and is particularly useful in hierarchical organizations that have standardized processes and where the emphasis in operations is on cost savings and better quality control.
There are several disadvantages to centralization, particularly with regard to communications, in that the amount of information can potentially overwhelm the central hub (person or department) that processes this information.