Centralized management is an approach to business by which a company makes most critical of its decisions at the top. The top executives, usually operating at a company headquarters, make most operational, strategic, financial, marketing, and other functional leadership decisions, and communicate them to mid-level managers and front-line employees.
Top Management Decisions
The most inherent characteristic of a centralized management model is that major decisions are made at the top. This concentrated decision-making approach helps a company put authority in the hands of their top employees. For instance, giving one major corporate buyer the authority to negotiate deals is often more advantageous than entrusting a number of lower-level or local managers with the ability to buy products within their local markets.
One of the recognized deficiencies of centralization is that it can detach local locations from their markets. When leaders make decisions in a central location, it is more difficult for the company as a whole to adjust quickly to changes or circumstances in local markets. Central offices typically rely on data and research to make decisions about store locations. However, local managers and employees are often better equipped to interpret the needs and traits of consumers in their respective markets.
Delayed Response Times
When decision-making power is consolidated with a small number of people at the top, responses to issues or situations requiring top-level involvement can take time. This can result in missed opportunities or untimely responses to business partners or consumers, who may expect a prompt resolution to a problem. As an example, if a local store is targeted by citizens for unethical practices or perceived environmental-preservation deficiencies, a delay in reacting to the allegations may give the impression the company lacks compassion or has done something wrong.
A main reason companies choose a centralized management model is to maintain consistency across the organization. One person or a small number of executives making key decisions are more likely to show consistency vs. many mid-level managers spread throughout the chain. Consistent standards and policies are critical to maintaining a successful brand image that is easy to recognize. It is also important in human resources that employees are treated consistently and fairly.