There can be a lot of problems that hold a business back. This can include economic forces, fickle markets and fierce competition. However, sometimes the problem lies with the structure of the company itself. Sometimes, a more hierarchical structure can create a more effective organization. Centralization is something that can certainly benefit many companies.

Centralization is the implementation of a strategy in which all of the significant decision making ability within a company is centered in one place on top of a hierarchy. This also typically includes the gathering of all the relevant managers for a company in the same general location at a company’s headquarters. Centralizing your business can have certain big benefits. Below are just a few.

It Reduces Conflict

The old adage that too many cooks spoil the broth can certainly be applied to the business world. Businesses tend to work best when there is one unified vision. Much like a centipede, all the legs should be moving in the same direction to achieve a shared goal. At the head of this centipede should be a leader, typically either the CEO or the business owner.

However, without centralization that focuses all the power within a company in one place, conflict can develop. Different managers may have different visions for the company. This can result in factions forming among different employees. In the end, this conflict may engulf the entire company and cause productivity to grind to a halt. In other cases, the inconsistency across the entire business can be very confusing to consumers. 

42 percent of companies believe their growth has been slowed by a lack of leadership within the organization. Overall, much like a nation or an army, a company also needs centralized power that provides leadership to be effective.

It Helps Slash Costs

Another reason why you should centralize your company is because it can help to bring down costs. One way it can do this through increased economies of scale. When a company is not centralized, all its different branches and subdivisions may have to purchase resources separately. This may have to be done because those different sectors of the company exist in different locations and are managed by different people. However, when a company is centralized, this is not the case. Supplies and materials can then be bought in bulk at a reduced price from vendors.

A second way it can decrease costs is through the creation of less regulatory burden. If everything regarding a company is centralized, the cost of meeting that regulatory burden will certainly be reduced due to the more streamlined structure of the organization. This can include regulations on the local, state and federal level as well as regulations from bodies that govern specific industries. On average, meeting the regulatory burden costs businesses $12,000 a year.

It Increases Efficiency and Competitiveness

Lastly, centralization can greatly increase a company’s efficiency. For one, it lessens the need for duplication. Due to the fact that everything is centered in the same general location, there will be no need for redundancy. This lowers costs and frees up resources. For example, if a business is stretched over multiple locations, it will need multiple different human resources departments. With a centralized business structure, however, only one HR department will be needed.

If a company centralizes, it can pool its resources in one place. This can be done, for example, through a print server migration. Such steps will help to greatly increase efficiency. Increased efficiency means a more nimble company that can more easily and quickly adapt to change. This efficiency combined with the ability to change course more easily thanks to centralized leadership can greatly help to increase a company’s competitiveness in a given market.

Overall, there are many benefits to centralization. It can allow for stronger leadership to emerge within an organization, slash costs and increase efficiency. It allows a company to grow naturally and adapt to change as needed. It is, under most circumstances, superior to a decentralized business structure.