A centralized organizational structure is one in which a single node or a small number of them are in control of an entire network.
Centralized structures rely on a central point of authority to make decisions and maintain the operation of the entire system.
Some examples of a centralized organization are a company that is controlled from the top-down by a single CEO or a small number of senior managers, or a mobile payments app that allows users to send money to each other but retains complete control over the processing of transactions.
Centralized structures are the opposite of decentralized ones. Centralized and decentralized structures are the two major types of organizational structure. Each type offers its own advantages and disadvantages.
Centralized organizations maintain a clear chain of command and a focused vision, which tends to lead to a quick and efficient execution of decisions and leaves less room for error. They are also usually more cost-effective owing to the clear separation of responsibilities between different actors.
However, centralized organizational structures are not without downsides, most of which result naturally from their reliance on a central point of authority, which can sometimes prove to be the single point of failure.
Lacking in redundancy, which is an organic feature of decentralized systems, centralized structures are excessively vulnerable to any malfunctions in their governing authority, regardless of whether those are caused by malice, incompetence or are simply accidental.
If a bank’s payment system goes down for an extended period of time, its customers are left unable to conduct any transactions, whereas decentralized networks like Bitcoin (BTC) or Ethereum (ETH) remain fully operational even when one or more nodes stop working.