Benefits and challenges of centralisation in African Banking Corporation Limited

Abstract

During the last quarter of the twentieth century, there had been a shift from authoritarian hierarchical structures to flatter, more decentralized structures that devolved a lot of decision making powers to employees and line management. Scholars have contended that this strategic shift in structure resulted from the shift of the world economy from industrial age to information age and the need for radical surgery on the structures to create room for building strong cross functional capabilities. The other reasons are to bring decision making closer to the customers or users for efficiency and empowerment of employees. However the banking industry in Kenya has tended to centralize operations with all major banks creating positions in their head offices that cater for operations for all branches or service outlets and the centralized decision making becoming the norm. African Banking Corporation (ABC) Limited is one of the medium sized banks that has embraced centralization in decision making in all its operations. Centralization in the bank started in earnest in 2003 and the first and the major phase completed with centralization of computer software in June 2004. The bank thereafter started reorganizing its structure to accommodate and complete these changes. The first objective of this study was to establish the benefits that have accrued to African Banking Corporation limited as a result of centralization. The researcher collected data through personal interviews guided by semi-structured questionnaire. The primary data was backed by secondary data. The study documented the following key benefits of centralization to ABC Bank limited. These include the fact that ICT has well been utilized, there has been control of management excesses experienced under decentralized system. There was also focused planning and control systems put in place. Overall there was increased efficiency that led to improvement of key financial indicators- revenue growth, cost reduction, increased profitability and loan advances to deposits among others. The second objective was to determine the challenges that ABC limited has faced as a result of centralization. The study identified various challenges that resulted from centralization. These included organizational culture, staff work over load at the headquarters, staff empowerment, staff confidence and staff motivation. Others include issues on delayed customer service. ABC Bank limited has contained these challenges mainly as a result of the commitment by the bank's shareholders and directors to centralization and hence their total devotion to the cause. However, the bank will only maximize the benefits of centralization once the management has changed the culture in the organization, place competent staff at the head office and fully utilize and integrate ICT into the organization.