What Is a Centralized Organizational Structure?

The term "centralized organizational structure" refers to a management structure in which the bulk of the critical decisions are made by a few key individuals at higher levels. Information flows up from the lower tiers to the higher levels, where it is then analyzed. Directions are then sent back down the lower tiers on how best to proceed.

A centralized organizational structure offers several benefits. It reduces the risk of dissent or conflicts between different departments. It also allows organizations to respond quicker to changes and promotes more efficient use of the company's resources. Centralized organization can lead to rapid growth in the company if the decisions are being made by a visionary leader.

There are, however, downsides to adopting a centralized system of management. It may cause workers to become dissociated with the organization's effort as well as encourage a lack of accountability. Members of an organization may also find it harder to learn the organizational dynamics because of the length of time it takes information to filter up and down through the organizational channels. In addition to hindering creativity, a centralized organization can cause lower tiers to become less flexible and slower to adapt and respond to minor issues. Constantly dealing with the day-to-day challenges of a company also means that top-level heads will have less time to strategize on other issues.