Everything you need to know about centralisation and decentralisation of authority. Centralisation means concentration. When authority is concentrated, there is centralisation.
An organisation is said to be centralised when most of the decision making power is reserved by one or a few persons at the higher level.
In a centralised organisation there is not much delegation of authority and responsibility.
In simple words decentralisation is simply a matter of dividing the managerial world and assigning specific duties to the various executive levels. Decentralisation refers to the systematic efforts to delegate authority to the lower levels.
Additionally, learn about the definitions, need, merits and demerits of centralisation and decentralisation.
Learn about Centralisation and Decentralisation in Management: Definitions, Need, Merits and Demerits
Centralisation and Decentralisation in Management – With Need, Merits and Demerits
Centralisation means concentration. When authority is concentrated, there is centralisation. An organisation is said to be centralised when most of the decision making power is reserved by one or a few persons at the higher level. In a centralised organisation there is not much delegation of authority and responsibility.
According to Allen, “Centralisation is the systematic and consistent reservation of authority at central points within an organisation” Centralisation reduces the importance of subordinates and increases the importance of central authority in the organisation.
It implies the following:
i. Centralisation and reservation of the decision making power with regard to various managerial functions, such as planning organisation, direction and control.
ii. Operating function to be performed by middle and low levels of management.
iii. Lower levels of management to operate under the direct command, direction and control of the top level management. Power is concentrated at the top level.
Many organisations at the initial stage prefer centralisation of authority for two reasons:
(i) Manager can be in touch with all operations (ii) It facilitates timely decisions. As the organisation grows in size, the need for decentralisation arises due to the complexity of work. Centralisation may also refer to the concentration of employees or of physical facilities.
For example, centralisation of sales may mean the grouping of employees performing the sales function and their table’s chairs and files are kept in one organisational unit. With the modern approach to business organisation, the presence of large scale business houses and the increasing complexities of business, centralisation of authority is somewhat rare.
Centralisation denotes that a majority of the decisions related with the work being performed are not made by those doing the work but by a point higher in the organisation. “Everything that gives to increase the importance of the subordinates role is decentralisation everything which goes to reduce it, is centralisation”.
In short, centralisation means the decision making prerogatives are retained by higher management levels. It implies that decisions regarding the work are made not by those doing the work but at a higher point in the organisation. Every manager must reserve certain authority for overall planning, organising, controlling and motivating.
Need and Importance of Centralisation:
The following factors indicate the need and importance of centralised structure of the organisation:
1. Uniformity of action – Only the top management having central authority to make decisions can bring uniformity of procedures by the operative units. Where a business concern wishes all its operative units to do the same thing in the same way there must be centralisation of appropriate decision making.
2. For improving personal leadership – This will result in quick decisions and enterprising and imaginative action which is essential for the success of the business. Improved personal leadership is important for the success of small enterprises. It is also important during the early stages of the enterprises. In both the cases, the operations are relatively on small scale and the top executive can concentrate entire authority with himself.
3. Well handling of emergencies – Centralisation will help in taking rational decisions from both short as well as long-term perspectives to meet uncertainties. Centralisation of decision making is essential when the business conditions are uncertain and there are chances that emergency conditions may develop to endanger the very existence of the enterprise.
4. Flexibility – Centralised organisation structure permits greater flexibility in the utilisation of existing personnel and facilities, and in handling fluctuating volumes of work.
5. Integration – Centralised control is needed to keep all the parts of the enterprise moving harmoniously towards a common objective.
6. Utilisation of personnel – Centralised organisation structure permits better and optimum utilisation of highly qualified and talented personnel, particularly in administrative and technical capacities.
1. Management planning and control.
2. Determination of objectives of the organisation.
3. Capital requirements and modes of procuring it.
4. Diversification, modernisation, expansion or contraption of business activities.
5. Personnel or staffing function.
6. Legal and governmental relationships.
Complete freedom and autonomy at all levels can be dangerous. A certain amount of centralised control is therefore essential.
1. Power and prestige symbol – It provides power and prestige to the central authority. The chief executive gets more power, prestige and feeling of importance.
2. Greater uniformity – Centralised organisation structure results in greater uniformity of policy making, practices and decisions.
3. Attainment of objectives – Centralisation binds all parts of the organisation together to attain the common goals of the business organisation.
4. Uniformity of Action – For some matters, all units have to act in the same way e.g. advertising, personnel policy etc. In such matters, centralised authority ensures uniformity of action.
5. Less expensive – It permits the use of cost saving or mechanical devices, better training methods of personnel and closer supervision and control. Under centralised structure of organisation, a smaller number of specialists would be required. Besides, physical facilities requirement, would be less than those required in decentralisation.
6. Use of specialist (Standardisation and Specialisation) – It is possible to utilise highly qualified specialist since the quantum of their work and scope are adequate to support such executive. It promotes greater standardisation and specialisation.
7. Effective control – A tight and effective control is induced without having to maintain extensive and expensive controlling machinery.
8. Quick decisions, imaginative action and flexibility are possible under centralisation. It permits flexibility and rapidity of adjustment to changing business conditions.
9. Centralisation is ideal to meet emergencies such as change in government policy, declining sales, competition and the like.
10. Duplication of activities, functions can be minimised.
11. It helps in the development of strong and co-ordinated management team.
Following are the disadvantages of centralisation:
1. Overburdened executive – Centralised structure of organisation increases the burden on the top executives and hampers the worth and development of managers and executives.
2. No scope for subordinates’ participation – Centralised authority does not offer any scope for subordinates’ participation in management. Thereby excellent and ideal suggestions from subordinates are restricted.
3. No motivation for subordinates – It lowers the morale, interest, initiative and enthusiasm at the lower levels. Work-spirit cannot be developed among the subordinates.
4. Increases problems of communication – It may raise the problems of communication of the decisions made by the top management, which may impair or adversely affect the subordinate’s ability for prompt action.
The term “Decentralisation” is open to a number of interpretations. It may sometimes refer to departmentation of all activities, divisions of responsibility or dispersal of the centres of authority etc. It is generally the third meaning of decentralisation which is popular with management experts. In simple words decentralisation is simply a matter of dividing the managerial world and assigning specific duties to the various executive levels.
Decentralisation refers to the systematic efforts to delegate authority to the lower levels.
It implies that the decision making authority is spread throughout the organisation. Decentralisation is associated with democratic management where an individual’s worth is respected.
Allen – “Decentralisation is the systematic effort to delegate to lowest levels all authority except that which can only be exercised at central points”.
Earl P. Strong- “Decentralisation means the division of a group of function and activities into relatively autonomous units with overall authority and responsibility for their operation delegated to the head of each unit”.
Fayol – “Everything that goes to increase the subordinate’s role is decentralisation, whereas everything which goes to reduce it, is centralisation”.
Koontz views that the degree of decentralisation is greater when-
i. More number of decisions are made at lower levels.
ii. More important decisions are made at lower levels.
iii. More functions are affected by the decisions made at lower levels
iv. Minimum checking on the decisions made at lower levels.
Therefore, decentralisation actually refers to the degree in which authority is delegated to the lower levels. Decentralisation is an extension of the concept of delegation of authority. Absolute centralisation or decentralisation is not possible in practice.
Thus we see that decentralisation is concerned with the dispersion of the power of decision making to lower levels in the managerial hierarchy. Actually centralisation and decentralisation both should be viewed in relative rather than absolute terms. Complete centralisation is the concentration of all decision making at the apex of the management hierarchy.
If this were possible there would be no need for a management hierarchy. In the same way, complete decentralisation or the delegation of all decision making functions to the lowest level of the hierarchy is equally absurd. In decentralisation management delegates the power of management coupled with the span of responsibility.
In short, centralisation is one extreme, and decentralisation is the other. Decentralisation refers to the dispersal of authority or the delegation of authority to subordinates, George Terry says “When authority is dispersed, decentralisation is present”.
Decentralisation is not the same thing as delegation. It is something more than delegation. Delegation means entrusting some part of his work by the superior to his subordinates. Decentralisation refers to the dispersal of centers of authority (decision making) throughout the organisation. It leads to scattered authority throughout the organisation, Decentralisation has been said to be an extension of delegation.
There are certain circumstances that necessarily bring about decentralisation of authority in an organisation.
These are as follows:
1. Size of the business enterprises – The larger the size of an enterprise, the more urgent is the need for decentralisation, as the growth of an organisation, increases the number of decisions and the difficulty in arriving at them on the part of the top management.
2. Growth and Diversification of Activities – These factors bring about decentralisation, in an organisation because growth and diversification make organisation cumbersome and effective direction becomes difficult, The top management becomes surrounded by committees and is overburdened with work and difficulties.
3. Training of executives – When management desires to train executives to handle higher positions in the organisation, it resorts to decentralisation. On the other hand an autocratic management does not resort to decentralisation and retains authority with itself.
4. Nature of competitors – The nature of a company’s product and the extent of competition it encounters, influence the extent and degree of decentralisation. In a competitive market, decentralisation may be practiced to ensure special emphasis on a particular product line or to concentrate attention on a particular market.
5. Surroundings and atmosphere – Certain internal as well as external factors influence the extent of decentralisation. These include technical developments, political factors, cost of decisions, availability of managers, the need for decentralisation of performance, personality of executives and so on.
1. Top Executives are Relieved from Burden:
Decentralisation stresses the importance of the delegation of authority at all levels of management so that the top management may devote its entire attention to decision making. It relieves top management of much workload.
Actually centralisation places heavy burden on the top executive who alone is responsible for planning and decision making. In a decentralisation set up, the subordinates share the burden of decision making and leaves the top executives enough time to control the strategic things.
2. Possibilities of Diversification:
Under decentralisation the diversification of products, activities and markets etc. is facilitated. This enables the concern to make up any losses in certain lines by gains in other lines and thus reduces the risks of business.
With the diversification and expansion of activities, an organisation tends to grow. Complex decentralisation helps it to meet the challenges of the complexities of big business.
3. Improved Morale and Job Satisfaction:
Decentralisation is a unique step towards the motivation. Since, local managers are given a large degree of authority and autonomy their morale goes high.
Decentralisation encourages initiative and personal ties among the various levels of management, which results in a greater job satisfaction and motivation for the employees.
4. Executive Development:
Decentralisation gives power, initiative and responsibility to a number of executives. This provides an opportunity for the development of executives in the organisation. It provides training for future managers and develops management personnel.
It promotes speed in decision making and avoids confusion. Quick implementation of decisions is made possible. In a decentralised structure, operations can be coordinated at the unit or divisional level, which is not possible under a centralised structure.
i. New ideas and techniques can more easily be implemented by lower level executives.
ii. Effective control can be exercised by fixing standards of performance and comparison of performance.
iii. Flexibility at all levels of management can more easily be achieved.
iv. Management by objectives can be practiced more effectively.
v. Better management-employee relationship can be achieved.
Decentralisation of authority may suffer from the following limitations or draw-backs:
1. Expensive – It increases the administrative cost due to duplication of specialist service and the appointment of capable executives at lower levels. It entails heavy expenditure and duplication of effort at junior levels.
2. Difficult control at lower level – It becomes difficult for top management to exercise control over what people at lower levels are doing or event to know what decisions they are taking. Since every executive at a decentralised level exercises authority in his own way. Uniformity in policies and practices may not be achieved.
3. Lack of co-ordination in different departments – A wide dispersal of authority under a decentralised set up may create problems of co-ordination among the various sections and departments of the business.
4. Lack of uniformity in decision making – It hampers uniformity in decision making and consistency of procedures.
5. Emergencies cannot be tackled properly – Emergency situations cannot be tackled properly in a decentralised structure. Adjustment to changing conditions may be difficult. As well as flexibility and adjustment to changing condition may become difficult in a decentralised set up.
6. Specialised services not utilised effectively – A decentralised set-up may not permit full and effective utilisation of the services of specialised and technical personnel.
7. In absence of adequate number of competent managerial personnel, decentralisation may not be practiced effectively.
8. Some centralised areas – There are certain areas which ought to be centralised, these include product pricing, managerial planning etc.
The following factors cause decentralisation:
1. Decentralisation of authority is useful. When quick and appropriate decisions regarding the situation and/or problem at lower level are required to be taken in order to facilitate utilisation of situation and opportunities that have defined at the lower level.
2. When the top management wants to reduce communication work decentralisation of authority is preferred.
3. The nature of company’s products or markets may require decentralisation of decision making to provide special emphasis on a product line or a market. Technological changes may also create conditions favourable to decentralisation.
4. Growth and diversification of activities of the company may make decentralisation necessary to introduce flexibility in operation, to facilitate proper direction and to relieve the top executive of the burden of extra work.
5. Physical dispersion of activities of the organisation may require decentralisation of authority for better results.
The degree of decentralisation depends upon several factors:
1. Costly Decisions:
The top management is normally better trained and in possession of more facts and is likely to take better decisions and commit fewer mistakes, but it does not necessarily mean that they are not opt to commit mistakes. The controlling factor behind withholding decision making authority in such situations is the weight of responsibility.
Since the responsibility cannot be delegated to a subordinate, the top executive does not delegate such authority are strategically vital and will prove more costly to a company, are normally taken by top management to avoid and will prove more costly to a company, are normally taken by top management to avoid risk of mistakes. The cost may be either in the monetary terms or in some intangible values such as company’s reputation, its competitive position or the effect on employee morale.
So in actual practice, the risk of committing mistakes by lower executives, and the cost of delay in decision on the part of top management, should properly be compared and the degree of decentralisation be determined.
2. Uniformity of Policy:
The desire and need of uniformity in policies and practices determine the degree of decentralisation. If the top management wants to take advantage of dissimilar situations with respect to labour, customers, sources of supply, trade practices or local conditions, it may desire to have more decentralisation for better treatment of different situations and to encourage individual initiative/The path of uniformity leads the organisation towards centralisation and the need of individual treatment towards more decentralisation.
3. Economic Size:
The problem of co-ordination and control are more complex when the business unit is large having various departments and a large number of employees. Complete centralisation is neither possible nor desirable. Centralisation of decision-making will result in delay, unnecessary increase in amount of paper work, overburden on top executives and poor quality decision.
The decentralisation of decision making in a large concern, therefore, is essential but it must be done so as to facilitate co-ordination and control. In large concerns divided into many autonomous groups, efficiency of management can be considerably improved. As it makes speedy decisions possible, saving time and energy of top executives. It reduces the amount of paper work and tends to improve the quality of decision by reducing its magnitude to manageable proportions.
It is, therefore, necessary that the major questions of policy must be decided at the top management level and the rest be decided at unit levels. For decentralisation to be management level and the rest be decided at unit levels. For decentralisation to be effective, the unit must possess a certain economic and managerial self-sufficiency.
4. Decentralisation of Performances:
Centralisation or decentralisation of performance is a technical matter depending upon such factors as the economics of division of labour, the opportunities for utilizing machines, and the nature of service to be performed, location of markets for raw materials, labour and consumers. Although the centralisation may be geographical or physical in nature, its extent has a major influence on the concentration of authority.
Authority tends to be decentralised when performance is decentralised. But it does not mean that a business whose performance is centralised will have authority centralised as well. It is true that authority can more easily be centralised if the operations of the organisation are in one building or location. But there are several other factors in centralisation of authority that give geographical concentration (decentralisation).
5. Business Dynamics:
The dynamic character of a business will also affect the degree of decentralisation. If the business is growing fast the facing complex problems of expansion, the manager is forced to take major responsibility of taking decisions. This dynamic condition may force him to delegate authority to subordinates and take a calculated risk of their errors.
The new discoveries, inventions, vigorous competition, political changes, new government regulations, liberation, globalisation, major labour troubles are some of the factors that might introduce dynamic conditions and when this occurs in an enterprise, the centrally managed firm may not be able to meet a situation requiring decentralised decision making.
6. History of the Enterprise:
If the authority in the initial stage of an enterprise was completely centralised in the few executive or owner, the delegation process is normally slow even in the expansion stage and the enterprise remains mostly centralised even after expansion. On the other hand when an enterprise is a result of amalgamation, consolidation of various units or companies, at least in the initial stages, it will be a case of a greater decentralisation.
7. Desire for Independence:
The subordinate managers and individuals may resent when they have no freedom and the decisions are taken by absent management. They may be frustrated by the delay in getting the decision, long lines of communication and by the greater business game of passing the buck. This frustration may lead to dangerous loss of good men. Moreover every individual has a desire for recognition of status and for autonomy.
This desire of self-assertion, power and status requires that some delegation of authority be made to subordinates to satisfy their desire of self-assertion. More decentralisation leads to democratic way of doing and provides more freedom and power to subordinates.
8. Availability of Mangers:
If there is a shortage of competent, honest and trained managerial personnel, it often leads to centralisation. But if the organisation has a good system of management training and development there will be no difficulty in having trained personnel. The decentralisation itself is the best key to training. Due to decentralisation the lower level managers get opportunity to take actual decision
9. Control Techniques:
Effective control system is a pre-requisite of delegation of authority. No good manager can be expected to delegate his authority unless he has some means to control for assuring himself that the authority will be used as he intended. As well as the managers need for understanding and utilizing appropriate control techniques, the state the development of these techniques are also limiting factors of decentralisation.
10. Nature of Top Management:
When the top management does not want any interference from the subordinates the organisation tends to become centralised. And when the management wishes to have a democratic organisation, where people enjoy freedom, status, and power and may make positive contribution by exercising their initiative, the organisation becomes decentralised.
11. Environmental Changes:
Even some external factors which tend to mould the extent of decentralisation may include government controls, tax policies labour unionism etc. For example if the labour union enters into a collective bargaining with the management on wage scales, bonus etc. the terms of the collective agreement will have to be uniformly applied irrespective of the fact where the workers of company are working, so the government controls and regulations have to be uniformly applied and regulated.
This calls for centralisation as the top management cannot delegate authority to its subordinates for their individual interpretation and application of the rules and regulations.
Thus the only way is to properly divide the work among several people of the organisation and yet maintain control, co-ordination and unity of direction and commonness of purpose.
Centralisation and Decentralisation in Management – Definition, Importance, Problems and Advantages
Decision-making is the most important element or function of management.
Centralisation is the process of decision-making where all the authority to decide is retained with the top-level management. The organisation where all decisions are taken at the apex of the management hierarchy (at top-level management) is called as centralised organisation.
Centralisation of authority means concentration of decision making power at the top hierarchy of management.
“Centralisation is the systematic and consistent reservation of authority at central points within the organisation.” – Louis A. Allen, op. cit.
Under centralisation all important decisions are taken by the top executives and operative decisions and actions at lower levels in the organisation are subject to the close supervision of the top executives. Therefore, centralisation states that most of the decisions are taken not at a point where work is being done but at a point higher in the organisation.
As Henri Fayol has said – “Everything that goes to increase the importance of the subordinate’s role is decentralisation, everything which goes to reduce it is centralisation.”
Further, the term ‘centralisation’ should logically mean the opposite of ‘decentralisation,’ that is, all responsibility and authority is retained at a central point. “In practice,” to quote E. F. L. Brech, “Centralisation must be used specifically, (because in every day meaning it implies the absence of any organisation structure; i.e., responsibility for either this or that is retained at the centre’’.
It may be found, in particular, to refer to a pattern in which the responsibility for all specialist lies at the central unit, the managers within the structure carrying decentralised responsibility for executive management of operations but housing to refer to the unit for decisions on all specialist activities. Once an enterprise attains a sizeable growth, considerable delays and difficulties can entail from this practice.
Infact, in his long discussion E. F. L Brech has focused his attention more on the disadvantages of centralisation than the plus points in its favour. However, he has brought the meaning more clearly when he says that centralisation is the opposite of decentralisation which he regards, “as the fusion of management structure with management action; in other words; the process seen operating within its due framework.”
While centralisation is the concentration of management structure at a central point where all decisions concerning the policies and programmes of the enterprise are taken.
The importance of centralisation of authority can be studied under the following heads:
(1) It Facilities Personal Leadership:
In a small and medium sized enterprise, personal leadership goes a long way in ensuring its success. Under a manager- leader who is talented, the following importance accrues to the enterprise – (a) Quick decision (b) Enterprising efforts (c) Forceful action (d) Flexibility and (e) Successful operations.
Small enterprises are benefited by centralised management structure. In fact, even larger enterprises having expanded into the maximum also have centralised system of management structure though under the garb of decentralization. Truly speaking whenever enterprises decentralise they create separate units, sections, departments etc.
These separate units are headed by the specialists in the field who are to take decision for the whole unit at his level. For the unit, then, it may naturally be termed as centralisation system though formally the enterprise has decentralised it.
(2) It Facilities Integration:
These types of organisation moves like one unit. It unites and integrates the total operations of the unit. It keeps all parts of the organisation moving together towards a common goal. It assures uniformity of standards and policies among organisational units. The manager acts as a unifying force and provides direction to enterprise activities.
(3) It Promotes Uniformity of Action:
In this the uniformity of action is followed by integration of the operations of the enterprise under one direction and command. Buying goods, recruiting personnel; advertising, planning, framing the policies and chalking out programmes are a few of the activities in which the uniformity is desirable for better results. Centralisation of authority promotes such uniformity of action.
(4) It is Helpful in Successful Handling of Emergencies:
In this type of organisational structure, quick decisions, imaginative leadership, forceful actions and flexibility are a few of the advantages of the personal leadership which help in successful handling of a situation which calls for immediate and quick decisions. Under centralised system this can be easily taken and in emergencies this may be tackled properly and with desired results.
(5) It is Helpful in Improving Efficiency:
Centralisation enables the management to exercise better control over the resources, make better utilisation of men, machine and material and reduce the wastes to the minimum, thus achieving economy in operation.
In the centralised system of organisational structure the following problems must be taken into consideration:
(1) The Top Level Managers are Overburdened with Work:
At many times centralisation has been recommended for small units or at the initial stage of a big business when operations are not too large, however, it makes the top level manager over burdened with work which in not consistent to their position.
(2) Here Acute Problem is in Data Processing:
In centralisation system it becomes very difficult for the managers to process the bundles of data regarding products, markets, costs, finance, people etc. and to take out results quickly and take decision in an appropriate manner.
(3) Every Chance of Misuse of Power:
This organisation also suffers as there is every possibility of misusing the power given to a person.
(4) Unnecessary Importance Attached to the People of Top Management:
Centralisation kills initiative, self-reliance and judgment of lower level personnel. The fate of the organisation very much depends on the health and vitality of the top management people. The organisation will have to suffer a lot if the decision taken by them goes wrong. Centralisation is, therefore, not for big and expanding business.
Every organisation structure in the beginning starts with centralised management structure. But with it every growth, it tends to decentralise and after its full growth it cannot remain centralised.
Delays and difficulties of centralization yield to decentralisation. But it does not mean that centralisation is never good. It is good at times and serves better if the structure is not large and growth is comparatively small or medium sized.
The following are advantages of centralisation:
(1) It Brings Uniformity in the Activities of the Enterprise:
All the orders and directions for all the activities of the enterprise are issued from a single point of management under the system of centralisation of authority. Power to make the decisions to decide the policies, to prepare the rules is vested with the top management only. Therefore, it brings uniformity in the activities of enterprise because all the sub-ordinates and workers follow these policies and orders.
(2) It Encourages Integration in the Enterprise:
Under centralisation of authority in the organisation direction and control of the enterprise remains in the hands of the top management. All the best efforts are made to bring uniformity in the activities of the enterprise. Therefore, it encourages integration in the enterprise.
(3) The Control and Administration becomes Easier:
It has been said that – “One man control is best in the world if that one man is big enough to control the whole affair.” According to this convention; the system of centralisation of authority is considered to be the best form of control and administration because under this situation, the business remains under the control of one person. Top management can easily control the affairs of the enterprise.
(4) It Makes the Decision-Making Process Very Easy:
The important advantage of centralisation of authority is the quickness in decision making process. Top management is empowered to take all the important decisions, it makes the decision-making process very easy and the decisions can be taken at the earliest.
Decentralisation is the process of decision-making where the authority to decide is delegated or shared among all levels of management. The organisation where even the lower level of management is involved in decision-making is called as decentralized organisation.
While studying the concept of delegation you have learnt that a superior gives a certain degree of authority to its subordinate to be able to take up some of his responsibilities. Undertaking a responsibility requires subordinate to take decisions within the powers delegated by superior. This means that while delegating, the superiors directly or indirectly involve subordinates in the decision-making process. The downward transfer of authority for making decisions is decentralizing the authority.
i. The principal of your school has given powers to the exam department to take all decisions related to conducting of exams. Since the principal does not directly interfere in the working of exam department, she has decentralized the decision-making authority.
ii. In a family, where father takes care of financial matters and mother takes care of household or children’s education, is also an example of decentralisation.
iii. A business enterprise is decentralized if decision-making authority is shared with all levels of management.
Decentralisation is a concept followed by organisations which delegate or share the power to decide with all departments and all levels of management.
Is the process of dividing the decision-making responsibilities among hierarchical levels. Involves delegating authority throughout all the levels of organisation. Places the decision-making authority to the nearest point of action. Pushes the decision-making authority down the chain of command.
There are various decisions which we might have to take ourselves but there are many for whom we may like to involve others. Similarly, no business organisation can either be centralized or decentralized. It is possible for small business enterprises to be centralized but as the size of business grows, complexities increase, it becomes impossible to maintain centralized decision-making.
To be able to function effectively, efficiently and take timely decisions it is important that top management takes all crucial decisions and routine decisions are taken by those employees who are directly and closely involved with specific operations. Therefore, it is extremely important for every organisation to maintain the balance between these co-existing forces.
Importance of Decentralisation:
Decentralisation is a philosophy that implies selective dispersal of authority to promote the belief that people are competent, capable and resourceful to assume the responsibility for the effective implementation of their decisions. Decentralisation recognizes the decision makers’ need for autonomy. Delegation of authority is the outcome of decentralisation.
The following points will highlight the importance of Decentralisation:
i. Develops Initiative among Subordinates:
Decentralisation gives freedom to the lower managerial levels to take decisions, trains them to depend on their own judgement and develop skills to find solutions to different types of problems they encounter during the course of fulfilling their responsibilities. The subordinates take initiatives to find more effective and efficient ways of handling the assigned work.
ii. Develops Managerial Talent for the Future:
The authority to take decisions at lower management level makes subordinates confident and self-reliant. Decentralisation provides on the job training where employees develop skills and gain experience of being a decision maker. It helps management to identify employees who have the potential to take challenges and contribute to organisational growth. In fact, decentralization helps to create dynamic, confident and self-reliant leaders.
iii. Quick Decision-Making:
Decentralisation promotes decisions to be taken at levels, which are nearest to the point of action. This means that employees are not required to depend on the management hierarchy and wait for top management to take decisions. The Decentralisation shortens the channel of decision making leading to faster decisions, fewer approvals and lesser distortions or confusions.
iv. Relief to top Management:
Through decentralisation superiors provide subordinates the authority to decide and act. This reduces the need of direct supervision from a superior. As a result, the superiors can utilize their time and energy to address important policy and strategic decisions.
v. Facilitates Growth:
Decentralization gives greater autonomy or independence to departmental heads as well as lower levels of management. This allows them to function or take decisions best suited to their respective departments, and promotes competition amongst various departments. The internal competition amongst departments leads to better performance and increased levels of productivity. This helps organisation to achieve higher returns from business which can be used for expansion purposes.
vi. Better Control:
Decentralisation makes it possible to evaluate performance at each level of management and for each department. As a result, it becomes easier to fix accountability and answerability. The performance analyses of each department can ascertain their contribution towards achievement, of organisational goals. Feedbacks from departments help to take corrective and preventive measures to improve performance.
From above discussions it seems that decentralization is the most beneficial and effective way of achieving organisational goals. However, if decentralization is followed without strict control from the top management it may lead to disintegration of the organisation. The departments, lower level managers or even individual employees may operate on their own guidelines, focus on their personal interest and may ignore organisational interests.
This may affect the organisation adversely. Therefore, in the interest of the organisation the management must maintain balance between decentralization and centralization in the major policy decisions.