The following are the main drawbacks or disadvantages of centralization:
1. Centralization Is Unsuitable For Large Organization
Centralization is impractical in large business organization having various branches in different locations. It is difficult to communicate managerial decisions to different operating levels in the management hierarchy. Top level managers cannot effectively supervise and control all the activities of the organization.
2. Manager Is Overburdened
In centralization, top managers are over burdened with authority and responsibility while managing each and every activity of the organization. He/she cannot devote sufficient time in other major issues. It tends to decrease working efficiency of the organization.
3. Possibility Of Power Misuse
Centralization of authority at the top level may result in under-utilization of power. Top level managers may exercise their powers on the basis of their personal judgement. This may lead to misuse of authority if the managers lack proper skills and ability.
4. Low Morale Motivation
In centralization. middle and lower level managers feel uncomfortable while performing the assigned task. They do not have the required authority to deal with problems effectively. They do not get any opportunity to show and develop their personality. The lack of motivation tends to affect the morale of subordinates.
5. Lack Of Environmental Adaptation
Business environment is dynamic and therefore, it changes according to time. In business, it is essential to take quick decisions to resolve problems of concerned departments or branches. Centralization is not applicable in dynamic environment as flexibility will not come promptly from the top level.
6. Inappropriate For Routine Decisions
In centralization, top level managers devote maximum time in taking routine decisions. Therefore, they cannot devote more time in non-programmed decisions. This will have a negative impact on the long term performance of the organization.
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