Meaning of Decentralization
Delegation of authority and duties is usually referred to as decentralization in which set up the organization is divided into different section and departments in order to help the organization grow scientifically and with a purpose of direction leading to harmony in relations and healthy atmosphere which generally is absent in centralized system of organization.
Decentralization of authority, holds Koontz and O’Donnell, “is a fundamental phase of delegation.” To the extent that authority is not delegated is obviously centralization. In the words of Henry Fayol, “every thing that goes to increase the importance of the subordinate’s role is decentralization.”
Decentralization is diffusion of authority. It is a process by which specific responsibility is assigned to subordinates. Such a responsibility, when assigned to subordinates, is always followed by sufficient authority which also is given to the executive and other subordinates at lower levels. Decentralization, therefore, refers to assigning of responsibility and delegation of authority to various executives and other subordinates at lower levels in an effort to make the lower level more responsible and accountant able to the job entrusted to them.
Advantages of Decentralization
The following are the advantages of decentralized setup of an organization:
- Distribution of Executive’s Burden: Certainly the decentralized setup offers an opportunity to the executive to share his burden with others at lower level in the process making himself free for more urgent and important work requiring his undivided attention. This smooth-ens the work gives speed to the work, creates cordial atmosphere and better understanding and develops team spirit among all those who are working for the organization.
- Saving in Time: The work originating at a particular level in an organization may be accomplished at the same level, if it falls within the limit of the authority of that level. Such work generally originates and accomplished. This naturally saves time and gives a speed to the work.
- Enthusiastic and Energetic Subordinates: The subordinate, who is asked to shoulder the responsibility with sufficient authority feels enthusiastic and functions with extra zeal and energy. In fact he feels elevated, his ego is satisfied and he is filled with energy simply because he is to work on his own. An involvement is there. A sense of being a part of the organization and a sense of accomplishment gives the subordinate vigor and vision. He works hard and accomplishes the task. This helps the organization in achieving the target satisfactorily.
- Greater Efficiency and output: Since the responsibility is given with authority and power everyone entrusted with such a responsibility takes care of fulfilling his responsibility with utmost care. This care and caution and enthusiastic approach to the work ensure increased efficiency and output.
- Expansion Facility: It offers greater scope for expansion of business as decentralized setup makes free the top managing people from routine and other matters and thus time available to them may be utilized by them for new thinking and new ideas. This gives an opportunity to plane expansion and achieve the same without much of difficulty. Expansion of modern business houses is the direct outcome of decentralized system of organization.
- Secrecy maintained: Comparatively here in such a sets up secrecy can easily and effectively be maintained without much cost and unnecessary trouble.
- Utilization of available talents: The talents available can be best utilized in decentralized setup as everyone is given an opportunity to prove his worth. Such an opportunity is usually not available in centralized setup. This also ensures loyalty and develops team spirit as well. Capability is rewarded here and one is given a chance to improve, if someone, somewhere, lacks due to one reason or the other.
- Quick Decisions: For decision one is not required to reach on the top. Just one can take decision whenever one has to take without wasting time and energy in rituals and maintaining the channel. Unnecessary wastage of time energy and money is avoided giving overall better performance.
Disadvantages of Decentralization
The following are the disadvantages of decentralized setup of an organization:
- Suitability issues: In cases where the training, experience, education etc. of the employees are inadequate, decentralization of authority would be harmful for the enterprise.
- Not desirable for small enterprises: Decentralization is not suitable for small enterprises because it would be easier and more economical to administer the enterprise on a centralized basis.
- Problematic in case of emergency: In a situation of emergency, decentralized administration is ineffective. It is costly and time consuming to control an emergency situation which affects a vital business area under a decentralized plan.
- Lack of uniformity: There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures.
- Coordination Problems: As each department / division enjoys substantial autonomy it might lead to coordination problems.