What is decentralization

De centralisation implies the dispersal of decisionmaking power at lower levels of management. When the power to take decisions and formulate policies does not lie with one person at the top but is passed on to different persons at various levels, it will be a case of decentralisation. The decisions taken at lower level should not only be more in number but they should be important also. If insignificant decisions are allowed to be taken at lower levels then it will not be a case of decentralisa


McFarland. “Decentralisation is a situation in whichultimate authority to command and ultimate responsibility for results is localised as far down in the organisation as efficient management of the organisation permits.” The delegation of authority and responsibility is allowed down ward upto a level it is necessary. In McFarland’s views the degree and extent of delegation should be determined as per the needs of the situation

Allen. Decentralisation refers to the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at th central points.

Allen says that authority should be delegated to the lower levels of management and top management should retain only those powers which cannot be exercised at lower level. In his view decentralisation will involve systematic delegation of authority.

Strong. “Decentralisation means the division of a group of functions and activities into relatively autonomous units with overall authority and responsibility for their operation delegated to a head of each unit.”

Earl P. Strong relates decentralisation to the working of different units of an enterprise. He says that decentralisation will require the delegation of authority to the persons
incharge of different units. They should have sufficient authority to run the units independently,

Measurement of Degree of Decentralisation

Decentralisation is not an absolute term. The degree of decentralisation varies from concem to concern. Eamest Dale has pointed out the following four tests to determine the degree of decentralisation

1. Number of Decisions- The greater the number of decisions made at lower levels of management, the greater is the degree of decentralisation :

2. Importance of Decisions- If important decisions are taken at lower levels then degree of decentralisation will be more. On the other hand if insignificant decisions are
allowed at lower levels then decentralisation will be much less.

3. Effect of Decisions- If decisions affecting more functions are allowed at lower levels then decentralisation will be more. On the other hand if only operational decisions
are made at lower levels then decentralisation will be less. When decisions involving finances are taken at lower level then degree of decentralisation will be more.

4. Checking of Decisions- When decisions are subject to the approval of superiors then decentralisation will be less. Still, it will be less if superiors are to be consulted before taking certain decisions. If subordinates are free to take decisions of their own then decentralisation will be more.

What Factors bring about Decentralisation

Decentralisation is necessitated by the following factors:

(i) When there is a need to take quick decisions on the spot to take advantage of the situation then power is delegated to the level where it is needed.

(ii) When top management wants to reduce communication work then decentralisation is undertaken.

(iii) The company’s product or market may require decentralisation of decision making to give emphasis to product or market. Technological changers may also facilitate

(iv) When growth and diversification takes place then decentralisation is necessary for bringing flexibility in operations and reducing burden on top executives.

Decentralisation is Extension of Delegation

Decentralisation and delegation are not the same thing. Decentralisation is much more than delegation. In delegation responsibility and authority are delegated from one individual to the other but decentralisation is scattering of authority throughout the organisation. Delegation is complete when authority is delegated to another person whereas decentralisation is complete when fullest delegation is made to all people in the organisation. In delegation control remains with the delegator while in decentralisation top management delegates controlling powers to the lower levels.

Some of the advantages of decentralisation are discussed as under:

Advantages of Decentralisation

1. Reduces Burden of Top Executives- Centralisation of authority over-burdens top executives. They are left with no time for planning, etc. In decentralisation decision-making power is delegated to the lower levels relieving top executives of some of their burden. Under this system top
executives will retain only that work which requires their personal attention otherwise everything is assigned to persons at appropriate levels. This will reduce the burden of top executives and they will be able to devote more time for planning, etc.

2. Quick Decisions- Under decentralised system decision-making, powers are delegated to the level of actual
execution. Whenever there is a need for taking a decision,the concerned executive will decide the things immediately.There is no need to make reference to the top level for most of the work. It quickens the process of decision-making,

3. Facilitates Diversification. With the expansion and diversification of activities there will be a need to delegate authority at departmental level. Decentralisation gives enough authority to persons at various levels for carrying out the required task. The centralised system of authority will not allow diversification beyond a certain level because decision making is reserved by one man only. The organisation will become more and more complex with the addition of new products and setting up of more units. Decentralised system will be more suitable for expanding enterprises.

4. Motivation of Subordinates- Under decentralisation subordinates get opportunity for taking decisions in-
dependently. This fulfils the human need for power, independence and status. Subordinates will realise their importance in the organisation. They will try to put their maximum efforts so that their performance improves. They get a chance to take initiative and to try new ideas. The subordinates feel motivated under decentralised set-up,

5. Sense of Competition- Under decentralised system different departments or units are made separate profit centres. The employees of different departments will compete with each other to show better results. The sense of competition will improve the performance of all departments or segments.

6. Provides Productor Market Emphasis-Since decision-taking is scattered and goes to lower levels of management there will be more product or market emphasis. The
changing tastes and fashions require prompt decisions. The decentralised system will respond immediately to the changing situations. The persons concerned with marketing will take quick decisions as are necessary under the situation.

7. Division of Risk- The enterprise is divided into a number of departments under decentralisation Management
can experiment new ideas at one department without disturbing others. This will reduce the risk if things go adverse. Once the experiment is successful it can be used in other segments also. So risk element can be limited under decentralised system.

8. Effective Control and Supervision-With the delegation of authority, span of control will be effective. Since executives at lower levels will have the full authority to take important decisions, they will recommend awards or punishments as per their performance. This will improve supervision and control.

Disadvantages of Decentralisation

Decentralisation suffers from a number of drawbacks and some of these are discussed as follows:

1. Lack of Co-ordination- Under decentralisation each department, unit or section enjoys substantial powers. They
have the powers to formulate their own policies and programmes. It becomes difficult to co-ordinate the activities of various segments. Moreover, every segment emphasises its own work only without bothering about others. This creates more difficulties in co-ordinating activities.

2. Difficulty in Control-Since different units work independently it becomes difficult to control their activities. Top management will not be able to exercise effective control because it does not remain in touch with day-to-day activities of various segments.

3. Costly-Decentralised system involves heavy overhead expenses. Every decentralised division has to be self-
sufficient for its activities like production, marketing.

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