Consolidation and centralization are methods of combining the functions of several departments of an organization into a single department. Information technology is a good example - many organizations first started acquiring computers on a department-by-department basis, with "experts" in each department responsible for installation and maintenance. Once networking became a practical reality, most of those organizations consolidated the responsibility for operating and maintaining their network, as well as maintenance of the individual computers, into a single IT department.
Reducing Costs Through Economies of Scale
One of the single most significant benefits of consolidation and centralization is economic. Volume purchasing generally reduces the cost per item, whether it's desks and chairs, computers, photocopying costs, or telephone service. The firm may even need less equipment overall, as devices such as wireless routers and high-volume photocopiers may be capable of serving more users. These same economies of scale apply to staff as well - receptionists and other support staff can often serve a consolidated office with little or no loss of efficiency.
Consolidation and centralization reduce redundancy. For instance, different departments in a company may each have accounts for office supplies with a local supplier, and assign someone to be responsible for storing and monitoring the inventory and replenishing supplies when necessary. A consolidated system of procuring office supplies also benefits the company by offering economies of scale as well as reducing the total amount of time spent attending to office supplies.
Establishing Uniform Procedures
By consolidating some functions under a single department, the firm eliminates the possibility of different standards and practices being applied in different areas. Each department in a company has different staffing requirements, for example. Yet the hiring process in most companies is centralized within the human resources department, ensuring that a uniform procedure is followed for all applicants and thus reducing the company's potential liability. Even when a company has multiple locations and must maintain an HR presence in each, that function is usually closely monitored by the company's headquarters.
Lowering Overhead Expenses
Consolidation can reduce real estate and some other overhead costs. Some companies have moved back office functions, and sometimes even sales and executive offices, out of costly urban locations and consolidated them with warehouse and distribution centers in suburban or rural areas, significantly reducing their costs wile expanding their space. Economies of scale may also apply if departments can share supplies, equipment, and support personnel.
Thought and planning should go into any process of consolidation and centralization, because they make sense in a broad range of circumstances, but not all. For example, consolidating the recruitment and hiring process within the headquarters of a firm with multiple locations will ultimately lead to greater inefficiency and cost.