0Decentralization is the process in which decision making authority is dispersed throughout the organization. Decentralization helps top management to focus more on major decisions by allowing middle and lower level management to take decisions about daily operations. For a small organization, growth may create a need for decentralization in order to continue operations efficiently.
Therefore,
- Decentralized Organization is the organization which often has several individuals responsible for making the business decisions and running the business.
- It relies on a team environment at different levels in the business.
- This type of structure is generally suitable for larger organizations as they can have several divisions or departments. Business owners may need to consider changing the organizational structure depending on the growth and expansion of business operations.
In an organization, Top managers would decide to increase the level of decentralized decision making authority due to the various advantages decentralization offers.
Advantages of Decentralization
- Relieving the Burden: Decentralization relieves the top executive of performing various functions such as hiring new employees, ordering supplies etc. and they can easily focus on bigger tasks such as planning for expansion or meeting with important clients.
- Ease of Expansion and Diversification: For example, if a company wants to expand by opening a new business unit in a different geographical area, then decentralization allows the new unit to operate as an independent business unit. And also helps in diversifying its activities and start the additional lines of manufacture or distribution.
- Efficient Decision Making: Decentralized organization is able to make quick decisions as they are not required to follow the scalar chain of command. This way, they can quickly react to the real situations and take informed decisions.
- Motivate Employees: Decentralization gives employees a sense of importance and boost their morale as they get involved in decision making process. It helps them gain better knowledge and experience by allowing them to implement their own ideas.
- Better control and Supervision: The subordinates at the lower level ensure better coordination and control as they have authority to make independent decisions. As a result they have complete knowledge of the assignment under their control and are in a position to make amendments and take corrective actions.
In spite of many benefits that decentralization can offer to the organization, it does have some disadvantages.
Disadvantages of Decentralization
- Problem of Coordination: It becomes difficult to coordinate amongst various divisions and subordinates as authority is dispersed throughout the organization. Decentralized organizations can struggle with multiple individuals having different opinions on a particular business decision.
- Requirement of Qualified Personnel: Decentralization require competent and qualified personnel so that they understand the company’s strategies and goals well. If they fail to do so, they may make decisions that are not in the best interest of the company.
- Uniform policies not followed: Due to authority in the hands of middle and lower level managers, they will work and frame policies according to their talent. Therefore, uniformity cannot be expected.
- Financial Burden: Decentralization leads to increased cost of control as management needs to closely monitor the performance of lower level management to ensure that delegated decision making authority is being used in the best interests of the organization.
- Loss of Control: Top management faces the danger that they may lose control of the organization, as they have less insight about detail of underlying operations and unaware of the decisions being made by lower level managers.
