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Decentralization refers to the pushing down of functional authority and power of decision-making to the lower levels of the organization. It is really an extension of the process of delegation. Just like delegation, decentralization in some form or other must exist in all organizational structures. To be precise, an organizational structure cannot be effectively maintained without the aid of decentralization.
Meaning & Definition
In the study of management, the term decentralization is used in two senses
- Managerial Decentralization, and
- Geographical Decentralization.
Geographical decentralization refers to the geographical dispersion of the activities of the enterprise. But our discussion is mainly concerned with managerial decentralization. Now we shall see some of the interesting definitions formulated for the term decentralization.
Definition of Allen: “Decentralization is the systematic effort to delegate to the lower levels of all authorities except that which can be exercised at central points“.
Definition of Newman: “Decentralization is simply a matter of dividing up the managerial work, and assigning specific duties to various executive skills“.
From these definitions, we can infer that decentralization refers to the dispersal of authority and the power of decision making to the lower levels of the organization.
How do Decentralization differ from Delegation
Decentralization should not be confused with delegation. Although decentralization is an extension or advanced form of delegation, they are not the same and should be distinguished The following are the important points of distinction between the two.
1. Delegation from one person to another is a complete process. But the process of decentralization shall complete only when the fullest possible delegation is made at all levels in the organization.
2. Delegation is a process while decentralization is a managerial policy.
3. No organization is possible without delegation. But decentralization is only optional. The top management may or may not opt for dispersal of authority. Hence, an organization can go without
4. Delegation enables the managers to distribute their work load to others. But decentralization leads to scattering of the authority throughout the organization.
Thus, decentralization is something more than delegation. As Koontz observes “Decentralization of authority is a fundamental phase of delegation“.
Factors determining degree of decentralization
The extent to which the authority should be dispersed is basically a policy matter and so the top management must make decision, in this regard while designing the organizational structure. As stated by H.Koontz and O’Donnell, the factors which govern the policy of the management can be enumerated as follows:
1. Cost Factors: The over riding factor determining the extent of decentralization is the criterion of costliness. If the decision involve heavy cost or investment, decision-making should not be delegated recklessly because if anything goes wrong, the enterprise has to incur financial losses.
2. Uniformity of Policy: When there is no need for uniformity of policy, high degree of decentralization is possible. On the other hand, if the company desires to obtain uniform policy, centralized authority is the easiest road to attain it.
3. History of the Enterprise: The way in which the business has been built is another factor which determines the degree of decentralization. If it has developed a set of departments first and other departments or divisions are established later, authority tends to be centralized.
4. Management Philosophy: The character and philosophy of the executive also influence the extent of decentralization. If the persons in the helm of affairs believe and have faith in decentralization then decentralization will prevail. If they are inclined to centralized authority due to various reasons, centralization will prevail.
5. Desire for Independence: The desire of the top management to develop the group executives at lower level so as to motivate them shall also pave way for decentralization.
6. Availability of Managers: Availability of competent managers also limits the extent of decentralization. When there is a scarcity of good managers, greater is the tendency for centralization. On the other hand, if they are available in adequate number, decentralization is practicable.
7. Control Techniques: If there are sufficient control techniques, decentralization is possible, because the performance of the subordinate can be measured and corrective action can be taken. In the absence of sufficient control, the tendency shall be towards centralization.
8. Decentralized Performance: If the activities of the enterprise are conducted at different places, authority is likely to be decentralized. However, it does not mean that when the performance is centralized, authority is centralized as well.
9. Business Dynamics: The dynamic character also vitally affects the degree to which authority may be decentralized. If the business is growing fast, decentralization becomes necessary. However, this factor also depends upon the availability of competent managers.