Decentralisation means delegation of authority in a downward direction so that the people in the management hierarchy get the decision making power. It is a systematic effort. In many organizations, only decision making power is with the top level management and only they are the ones playing an active role. These organizations are called the centralised organization. Centralisation is thus the retainment of decision making power with the top level management and decentralisation means the delegation of the same. Extreme conditions, where the organization is completely centralised or completely decentralised, is harmful for an organization also to a large extent it is unrealistic. When the organization chooses to completely delegate the powers and authorities to the lower levels in a management hierarchy then the top level management will become useless. On the other hand, when the organization retains all the powers, the management hierarchy itself becomes useless.
Decentralisation is very useful because the employees who are closely related to or closely deal with certain kind of methods and operations can take better decisions than the top level management alone because they are not in close contact with the subject.
There should be co existence of both because they have different benefits and limitations.
Benefits or importance of decentralisation
The benefits of the decentralisation of authority are as under:
Develops initiative among subordinates
When the authority, responsibility and powers are decentralised then the people throughout the organization feel a certain type of confidence and they develop initiative. They feel that they are also important to an organization and thus their morale is increased. Also, they use their own knowledge and their own judgement to take certain decisions and thus they get a sense of freedom.
Develops managerial talent for the future
Every employee needs a formal training but it is equally important to have firsthand experience of the things. When the employees deal with the things themselves, they not only get a sense of freedom but also develop better judgement of things. When they deal with the problems in an organization but themselves then they can develop their own solutions rather than depending upon the top level management. In this way, they get a chance to prove their skills and abilities and they get better with the experience and thus a potential managerial talent for future is developed.
Quick decision making
The main benefit of decentralisation is itself the quick decision making. The decentralised organization will take the decisions quickly than the centralised organizations. In a centralised organization, the topic is first discussed with the different levels of management then the time is taken for response and this delay the decisions which can many a times hamper the opportunities which an organization gets. While in a decentralised organizations, the decisions can be taken quickly because there is no need to transfer the information to every level.
Relief to top management
In an organization there are various tasks to be performed. The top level management needs to look after the policy formations, external environment, operational activities etc. when these tasks are decentralised then the burden on the top level management is reduced. This extra time which is left with the after the delegation of authority can be utilised in other high priority areas. The need to check over the workings and the operations of various levels will reduce and this will give a relief to top level management and altogether improve the efficiency because every level in a management hierarchy will be focusing on their level of work.
When each level in a management hierarchy or division or department is focusing only on their work and wants to improve their own area then it leads to a healthy competition in an organization. This healthy competition is very important for every organization because it leads to better performance and improved productivity. When every division or department gets to exercise autonomy and use their own judgement, then they get a sense of recognition and their managerial skills are also improved along the way.
Evaluation of performance is very important in an organization and when each division and department or each level in a management hierarchy is performing and focusing only on their own tasks then the control becomes easier because they will be solely accountable for their results. The communication in an organization also improves because there are less people in the communication chain.
Disadvantages of decentralisation:
There are some disadvantages also which can make decentralisation a less attractive choice. They are:
Difficulty in coordination
When each division and department is performing with their own autonomy then it will hamper the coordination of an organization because it will become difficult to keep track of all the activities which they are performing on an individual department level.
It may affect the organizational policies
When every department and division is performing in their own way then it may lead to sacrificing the policies and strategies of the organization as a whole. The organization may have decided to take particular type of action for a particular type of problem but the departments may choose to act differently which they think will suit them.
Increase in cost
Decentralisation may lead to increased cost because each department will be performing their individual tasks and this will lead to duplication of some efforts and will increase the cost and also lead to wastage of time.
Loss of control
Excess amount of decentralisation may lead to loss of control of the top level management and also lead to misuse of authority. When the individual department goals are not aligned with the organizational goals then it will hamper the efficiency, effectiveness and productivity of the organization at a large scale.