Decentralization is the process by which the authority in an

organization is delegated to the lower level managers. With

this decentralized authority comes the responsibility to the
managers. It is just the opposite of centralization, where the
authority lies in the hand of a few people
Advantages of Decentralization
Motivation of Subordinates

Decentralization improves the level of job satisfaction as well as employee morale, especially
amongst the lower level managers.

Furthermore, it strives to satisfy the varying requirements for participation, independence, and
status. Decentralization also promotes a spirit of group cohesiveness and spirit.

Growth and Diversification

Under decentralization, every single product division attains sufficient autonomy to exercise their
creative flair. In this way, the top-level management can create healthy competition amongst different
divisions.
While carrying out a discussion on the advantages and disadvantages of decentralization, it is imperative
to note that it aids subordinates in exercising their own judgment.
They even develop managerial skills and help in solving the succession problem which ultimately
ensures the growth and continuity of an organization.

Quick Decision Making

Another important pointer in the advantages and disadvantages of decentralization is that decisions are
taken and executed by authorized personnel. This, in turn, results in faster and accurate decisions which
are well aware of the real scenario.

Efficient Communication
The wider span of management under decentralization leads to fewer hierarchical level. This makes the
communication system more efficient as intimate relationships develop between superiors and
subordinates.

Ease of Expansion
Decentralization can add inertia to the expansion process of a growing business. This might often result
in the opening of new business units in varying geographical locations.
Decentralization unleashes the fullest potential of the organization and can react easily to area-specific
requirements.

Better Supervision And Control

Lower level managers can alter production schedules and work assignments with adequate authority.
They can even take disciplinary actions and recommend the promotion of their peers.
This, in turn, leads to greater efficiency in supervision. Performance evaluation of each decentralized
unit helps in exercising adequate control.

Disadvantages of Decentralization

Difficult To Co-Ordinate

While talking about the advantages and disadvantages of decentralization, it is imperative to note that
substantial autonomy is enjoyed by every single division. This, in turn, makes it difficult to coordinate
the overall activity.

External Factors

The trade union movement, market uncertainties, and government intervention might make it
impossible to benefit the most out of decentralization.

Narrow Product Lines

Decentralized product lines need to be adequately broad so that autonomous units can flourish
within the same. This might not be of much help in small business houses having narrow product lines.
Lower levels in the organization also lack competent managers thus adding to the difficulty quotient.

Expensive
In decentralization, every employee takes responsibility for the better of the organisation so they work
harder to achieve all the organizational objective. In return, they have to be paid more which sometimes
proves to be very expensive for the company.

Factors that determine the Degree of Decentralization

Size of Organization and its Complexity
If the organization is large and complex, then it has a greater need for decentralization. However, if
the organization is relatively simpler and smaller, then creating autonomous units is usually costly.
Therefore, the top management makes most of the decisions.

Are the operations dispersed?

Let’s say that an organization has its production and sales units geographically scattered across
multiple locations. In such cases, keeping centralized control over all the processes is very difficult.

Therefore, such organizations tend to opt for decentralization. On the other hand, if an organization
has all the units present within the same building, then having centralized control is more effective.

Degree of Diversification

In the case of companies having multiple diverse product lines, decentralization is necessary as well
as beneficial. On the other hand, if the organization desires high standards of standardization, then it
needs centralization.

How many competent personnel does the organization have?

An organization can successfully decentralize authority only if it has competent and experienced
managers at lower levels. If there is a dearth of such employees in the organization, then
decentralization will function in a restricted manner.

Learn more about the Meaning and Importance of Decentralization here in detail.

Top Management’s Outlook

If the top management is conservative and believes in control in the hands of a limited number of
people, then it is likely to centralize authority.

On the other hand, if it believes in individual freedom and is comfortable with the authority not
being confined to a limited few, then the organization will have a high degree of centralization.

Nature of Functions

Usually, some basic functions in an organization like sales, production, etc. have a higher degree of
decentralization.

In comparison, staff functions like personnel, research and development, finance, etc. are less
decentralized or even majorly centralized.

Communication System in the Organization

If an organization decides to decentralize authority, then it must ensure that an effective

communication system exists. This is necessary for coordinating and controlling the activities of the
operational units.
On the other hand, if an organization has an ineffective communications system, then it should opt
for centralization.

Further, computerized management information systems have enabled centralized decision-making.

Planning and Control Procedures in the Organization?

If an organization is clear about its objectives and policies, then seniors are more willing to allow
their subordinates to make independent decisions.

Remember, decentralization is successful only when there is a good control system in the
organization.

This is because the top management can use this system to assess the effectiveness of the decisions
that the subordinates make.

Environmental Factors

The environmental factors play a major role in determining the degree of decentralization in an
organization.

To give an example, if the business environment of an organization is highly uncertain, the

organization might not give a high degree of freedom to operating units.

This is because, in uncertain conditions, this might endanger the existence of the organization itself

. Management philosophy
The character of top executives and their philosophy have an important influence on the extent
to which authority is decentralized.
Sometimes top managers are despotic, brooking no interference with the authority and
information they jealously hoard.
At other times, top managers keep authority not merely to gratify a desire for status or power but
because they simply cannot give up the activities and authorities they enjoyed before they
reached the top or before the business expanded from an owner-manager shop.
Conversely, some people find decentralization a means to make the big business work.
In those cases, top managers may see decentralization as a way of organizational life that takes
advantage of the innate desire of people to create, to be free, and to have status.