Advantages and Disadvantages of Decentralization

Advantages and Disadvantages of Decentralization

Decentralization is today’s concept where decision making is not the prerogative of top management only. With the increasing profession­alism in the management function and global span of business, decentralization has become a need if an organization wants to grow.

Advantages of Decentralization:

i. Decentralization may be, in part, merely the result of circum­stances (Dale). Centralization enables a competent leader to control work and produce results quickly and effectively.

ii. It helps to coordinate work and put all activities on track. There are certain special circumstances forcing managers to reserve authority and centralize decision-making power.

iii. Actions can be focused on what needs to be done and duplications can be put to rest. It becomes easy to get all units and people do the same thing in the same way at the same time without wastage of resources and energies.

iv. Decentralization is the best solution to handle emergency situations—such as declin­ing sales, cutting costs, using resources productively, pushing a competitor to the wall, handle policy changes of government etc. Centralization ensures prompt decisions – flowing from one individual who is ultimately made responsible for everything.

However, centralization makes it extremely difficult for managers to process the bundles of data regarding products, markets, costs, finances, people etc., in quick time and take decisions in an appropriate manner. The managers are burdened with a great amount of detailed and exhaustive work; they have to work for painfully long hours and take a stuffed briefcase (of problems) home with them.

Centralization forces top management to possess a broad view that may be beyond their capacity (Carvel). The vast amount of power given to a few people may be abused (power corrupts absolutely, and may be used as a ‘whip’). More dangerously, the fortunes of the organization depend on the health and vitality of top management people. The organization is highly vulnerable to what happens to its dynamic and talented top management people. Centralization floods communication lines to a few individuals at the top of the organization.

As a result, the speed of communications upward and decisions processes are slow. Lastly, centralization kills the initiative, self-reliance and judgment of lower level personnel. It inhibits the development of  operating personnel.

Disadvantages of Decentralization:

Decentralization is not a sure bet. It could prove to be a troublesome exercise if not carried out in a proper way, in the following ways:

1. Conflict:

Decentralization puts increased pressure on divisional heads to realize profits at any cost. This may lead to inter-divisional rivalry leading to bitter fights. Each divisional head might be tempted to build his own empire at the cost of others. Problems of coordination and control may also arise when such ‘mini-companies’ or ‘little empires’ exist within an organization.

2. Cost:

Decentralization results in a duplication of staff effort. To be in­dependent, each division should have access to purchasing, personnel, marketing and other specialists. As a result each division is expected to carry a large group of staff specialists at enormous cost.

3. Some Disadvantages of Decentralization Relate to the Profit-Centre Concept:

Often capable and competent individuals may not be avail­able to run the divisionalised organizations. Freedom of action may lead to diversity of decisions. Many a time the remote control from headquarters may prove to be ineffective as the enterprise grows. In addition, decentralization demands training programmes that may be time-consuming and highly expensive.

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Advantages and Disadvantages of Decentralization

Posted by staff on June 17, 2021

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Advantages and Disadvantages of Decentralization

Advantages and Disadvantages of Decentralization

Decentralization is today’s concept where decision making is not the prerogative of top management only. With the increasing profession­alism in the management function and global span of business, decentralization has become a need if an organization wants to grow.

Advantages of Decentralization:

i. Decentralization may be, in part, merely the result of circum­stances (Dale). Centralization enables a competent leader to control work and produce results quickly and effectively.

ii. It helps to coordinate work and put all activities on track. There are certain special circumstances forcing managers to reserve authority and centralize decision-making power.

iii. Actions can be focused on what needs to be done and duplications can be put to rest. It becomes easy to get all units and people do the same thing in the same way at the same time without wastage of resources and energies.

iv. Decentralization is the best solution to handle emergency situations—such as declin­ing sales, cutting costs, using resources productively, pushing a competitor to the wall, handle policy changes of government etc. Centralization ensures prompt decisions – flowing from one individual who is ultimately made responsible for everything.

However, centralization makes it extremely difficult for managers to process the bundles of data regarding products, markets, costs, finances, people etc., in quick time and take decisions in an appropriate manner. The managers are burdened with a great amount of detailed and exhaustive work; they have to work for painfully long hours and take a stuffed briefcase (of problems) home with them.

Centralization forces top management to possess a broad view that may be beyond their capacity (Carvel). The vast amount of power given to a few people may be abused (power corrupts absolutely, and may be used as a ‘whip’). More dangerously, the fortunes of the organization depend on the health and vitality of top management people. The organization is highly vulnerable to what happens to its dynamic and talented top management people. Centralization floods communication lines to a few individuals at the top of the organization.

As a result, the speed of communications upward and decisions processes are slow. Lastly, centralization kills the initiative, self-reliance and judgment of lower level personnel. It inhibits the development of  operating personnel.

Disadvantages of Decentralization:

Decentralization is not a sure bet. It could prove to be a troublesome exercise if not carried out in a proper way, in the following ways:

1. Conflict:

Decentralization puts increased pressure on divisional heads to realize profits at any cost. This may lead to inter-divisional rivalry leading to bitter fights. Each divisional head might be tempted to build his own empire at the cost of others. Problems of coordination and control may also arise when such ‘mini-companies’ or ‘little empires’ exist within an organization.

2. Cost:

Decentralization results in a duplication of staff effort. To be in­dependent, each division should have access to purchasing, personnel, marketing and other specialists. As a result each division is expected to carry a large group of staff specialists at enormous cost.

3. Some Disadvantages of Decentralization Relate to the Profit-Centre Concept:

Often capable and competent individuals may not be avail­able to run the divisionalised organizations. Freedom of action may lead to diversity of decisions. Many a time the remote control from headquarters may prove to be ineffective as the enterprise grows. In addition, decentralization demands training programmes that may be time-consuming and highly expensive.

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