Before getting into the advantages and disadvantages of decentralization, it is important to know its fundamentals. As the name suggests, decentralization includes the process of ultimate control by the functional departments. Furthermore, decentralization refers to the process wherein the central authorities transfer decision making power to the subordinates.
In simple words, it is the strategy that an organization adopts wherein the top level management delegates power to the middle and lower level management.
Decentralization – Fundamentals
Decentralization is that type of organizational structure wherein the top management transfers the decision making power to the subordinate levels. The middle and lower level management handles the day-to-day organizational functions and policy making. Furthermore, this ensures that the higher authorities are free to focus on rather crucial organizational matters.
Let’s understand the decentralization concept with the help of a practical example. In decentralization, the CEO is in charge of business decision making. Moreover, he is also entitled to monitor the overall operations of his organization.
However, the CEO delegates the authority of marketing decision making to his subordinates at the lower hierarchical levels.
Therefore, in decentralization, the CEO does not decide on policies for marketing, finance, operations, and supply chain. The task of decision making for each department lies in the hands of its respective Managers.
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Advantages and Disadvantages of Decentralization
Decentralization comes with its fair share of both, advantages and disadvantages. Therefore, it becomes mandatory for an organization to analyze, both, the pros and cons. Moreover, this analysis will ensure the adoption of the most suitable decision making a strategy.
Some of the advantages of a decentralized organization are as follows:
- Since each department is responsible for its operational decision making, the top level management are free to focus on high degree tasks.
- There exists a stronger emphasis on critical business conditions.
- Decentralization ensures decision-making opportunities to middle level and lower level managers. These opportunities and experiences are crucial in the employee workforce skill building.
- As a result of the above point, the managers who are provided with the power to make decisions for their respective departments also have developed strong employee morale.
- The lower level and the middle-level managers are capable of making a better decision for their respective functional areas. This is so because the departmental managers have a better vision for their department and know their intricate functioning. And can hence formulate all the more suitable policies than the top level management. For instance, a regional manager dealing with selling and distribution of products knows about the local culture. He is also more knowledgeable when it comes to knowing the needs of the customers. Hence, it gives him an edge over the top level manager when it comes to decision making.
- The middle and lower level managers receive the opportunity to prove their managerial efficiency, thus providing motivation to improve their performance. Also, the top level authorities begin to notice the true potential and capabilities of their employees.
- Individual departmental goals, as well as the overall organizational goals, can be catered to with equal importance and significance.
Some of the disadvantages of a decentralized organization are as follows:
- There could arise a huge communication gap between the different hierarchical levels of the organization.
- Many times, the department’s goals delineate from the organizational ultimate goals and objectives.
- The process of effective control, monitoring, and evaluation of departmental performance may be impossible.
- And due to the difficulty in the above point, the cost of control could increase considerably.
- Moreover, the independence and power of decision making given to the middle and lower levels could be taken advantage of and not put to best use.
- The centre will have lost total control over the operations at various levels of the organization.
- Decentralization can often cause inter-departmental and organizational level conflicts.
- When it comes to any unforeseen contingencies or emergency situations, the process of decentralization is not the best.
Questions on Advantages and Disadvantages of Decentralization
Q. What is the difference between centralization and decentralization?
Answer: In centralization, decision-making rights lie with the top management authorities. However, in decentralization, the organization believes in the delegation of decision-making rights to the subordinates.
Q. Which is a better organization structure among decentralization and centralization?
Answer: Many factors need to be considered while deciding if you want your organization to follow a centralized organization structure or a decentralized structure. Both come with their set of advantages and disadvantages. Before going ahead with the decision, it is important to consider the size of the organization, the qualification of the employees and the intensity of responsibilities.