Centralising business functions gives an organisation greater efficiency
Centralisation is a process where activities such as decision-making and planning are concentrated to some few specific leaders. Centralised organisations focus their decision-making power at the head office. This essay aims to evaluate whether centralising business functions leads to greater efficiency.
Centralisation is cost-saving through the establishment of a specific location to produce and distribute services. According to the American Productivity and Quality Center, centralised manufacturing expenses are 10 per cent lower than a decentralised one. In a centralised production, a single factory uses the same equipment to manufacture different products, thus reducing production costs. A research conducted by APQC, comparing the prices of centralised and decentralised manufacturers, they found that centralised manufacturers are 3 per cent lower. Consequently, centralised production increases the cost of labour, especially if the company’s central point is in a country or region where wages are growing. Cost-saving is enough evidence to show centralising business function leads to higher efficiency.
Centralisation has a transparent chain of command since the top management level makes decisions such as strategic planning, talent deployment, budgeting and other critical decisions. According to Corporate Finance Institute, lower levels in business knows who to approach whenever a concern arises. Also, senior officers are confident when delegating authority since there will be no overlap. Transparent chain of command helps an organisation when executing urgent decisions which are faster and unified. Moreover, this structure is somehow bureautic, which takes dictatorial leadership since employees are expected to deliver according to the top executive authority. However, a transparent chain of command indicated the efficiency of business since every person knows where to report.
Centralisation improves the quality of work. Supervisors in various departments ensure high quality and uniform outputs. According to Chron, the use of high-tech equipment guarantee high-quality work while reducing potential wastage from manual labour. More so, the standardisation process reduces the replication of work. On the other hand, centralisation present delays in work. This happens when documents are sent to and from the decision-makers if there are delays in relaying the reports. Employees always rely on the message communicated from the top. Despite setbacks in work, centralisation presents greater efficiency through improved quality of work.
Employees have well-defined roles in a centralised organisation. When employees are aware of their duties and responsibilities, they are likely to be more productive. According to Chron, when employees have well-defined responsibilities, it lives easier for human resources and the management to find whether there is a need for hiring additional employees or creating new roles. However, there is no employee loyalty to an organisation since their initiative is not allowed in their performance. This limits their -dedication and creativity due to the rigidity of the work. Furthermore, well-defined roles in centralised structure promote efficiency in business.
Lastly, from the above discussion, it is evidence that centralisation of business functions promotes the effective functioning of an organisation. Also, the concentration of services, as seen, is beneficial to the organisation through these positive contributions. To sum up, centralisation is an option for an organisation that feels it is suitable for them.