Decentralization

The results of maximum delegation throughout the organization is decentralization. Under decentralization power and control are systematically delegated to lower levels in the organization.

In general decentralization is pursued when the environment is complex and uncertain, when lower level managers are talented and want more say in decision making and when the decisions being made are relatively minor.

The opposite of decentralization is centralization, by which power and control are systematically kept at the top of the organization. Decentralization as a philosophy of management involves:

•    Selectively/determining what authority to push down to subordinates.
•    Developing policies and procedures to guide subordinates on how to use this authority.
•    Controlling the use of this authority.
•    Geographical relocation of activities.

Factors determining the degree of centralization or decentralization:

•    Number of decisions made at lower levels. The greater the number the greater the degree of decentralization.
•    The importance of the decision—if decisions at lower levels affect important aspects of the organization, then the degree of decentralization will be restricted.
•    Costliness of decisions—this is probably the most important factor as managers are reluctant to delegate authority for crucial decisions. Generally the more costly the action to be decided, the more likely that it will be made at higher levels.

•    Need for uniformity in policy—usually where uniformity of policy is required centralization is favoured.

•    Size of the organization—usually the larger the organization the more the need to decentralize. Larger organizations with larger numbers of people must be divided to fairly autonomous divisions to facilitate efficient management.

•    Management philosophy i.e. the orientation of top management.

Advantages of decentralization

•    People working in the line units can make quick decisions without reference to their superiors all the time.
•    High morale and staff motivation exists because the middle and junior managers are encouraged to use their initiatives to be responsible for their work.
•    Decisions concerning conditions and situations are flexible and adaptable. This is useful for rapid changes in the organisation and beneficial in the competitive market.
•    Top managers are relieved of work overload which is diffused. They can get more time to put their efforts on policies, objectives and strategies. This is useful for growth, expansion and better profitability in their organisations.

Disadvantages of decentralization

•    It is difficult to get capable managers who are well motivated to be responsible for handling additional responsibility.
•    Decentralization may lead to inconsistent treatment of customers or members of the public. This may lead to loss of business if the market has major competitors.
•    Decentralization leads to ineffective communication unless adequate control systems are established in the organisation.
•    Parochial attitudes may be developed by some subsidiary units in the decentralized organisations. They may consider their own needs instead of the corporation needs.
•    It is difficult to exercise effective control and co-ordination of activities in decentralized organisations. The individual units can sometimes work against the corporate goals and objectives.

Conclusion
An organisation is better off if it uses a decentralised structure but maintain adequate control and co- ordination of all functional activities.