Concept, needs and factor affecting decentralization

Concept of Decentralization

Decentralization is the process of equal distribution of decision-making power to the operating level of staff for better performance. This philosophy emphasizes that the top level of management should keep minimum right and power and all decision-making powers are to be provided to the operating level of staff, manager or superior. It is optional and suitable for the research oriented and creative jobs where the employees are disciplined, skilled and trained.

According to Louise A. Allen,” Decentralization is the systematic and consistent delegation of authority to the level where the work is performed.”

Similarly in the word of Dale S. Beach,” Decentralization means placing the authority and decision-making power as close as possible to the level at which the work is done.”

In conclusion, we can say that decentralization of authority is the process of systematic and scientific delegation of authority to the operating level of staff for better performance.

Needs for decentralization

• Reduce the burden of the top executive: Decentralization is the distribution of power and authority. It relieves top executives from routine and day-to-day time-consuming works and helps them to devote greater attention to other important organizational issues such as planning, policy making, strategy formulation and decision making.

• Facilitate diversification: Decentralization facilitates diversification of products, activities and market. Alfred D. Chandler opines that it is the decentralization of authority which contributed a lot to the large American enterprises such as DuPont, General Motors, Standard oil and Sears Roebuck, which were initially very small and had a centralized organization structure.

• Permits quicker and better decisions: The superior, who are close to the work, are most knowledgeable about the specific details and circumstances of problems that arise in their respective department or work units. Due to decentralization of authority, they are involved in decision making and appropriate decisions are taken by the managers very quickly.

• Management development: Decentralization encourages managers to exercise freedom in decision making. They learn to exercise judgment. This develops managerial competency. This also promotes innovation and creativity.

• Environmental adaptation: Decentralization helps an organization to adapt to fast- changing environment because the subordinate’s personal thinking are also given due priority.

• Improved teamwork: Both managers and employees share the decision-making authority which integrates the employees as one team and develops team spirit among them.

• Motivation: The subordinates or managers, receive rights, powers prestige and status through this decentralization of authority. They feel greater opportunity of leadership and participation in the organization. This may lead to increase in their morale and it may motivate them more and more to work honestly.

• Effective supervision and control:It is said and accepted in many cases and circumstance that greater the degree of decentralization, the more effective is the supervision and control. Supervision and control can be made effective by evaluating the performance of each unit, plant, department or branch office in the light of predetermined standards.

Factors affecting decentralization of authority

Decentralization of authority is a blessing to the organizational success. While designing or determining the organization structure, one should be clear about the degree of concentration and dispersion of authority in the organization i.e. centralization and decentralization of authority. While determining decentralization of authority, the following factors should be considered as they affect much in determining the amount of decentralization appropriate for an organization:

• The size of the organization:It is observed that the speed and adequacy of decision making, flexibility and efficiency are enhanced through decentralized operations in the case of very large, multi-product diverse and complex organization. Thus,larger the size of an organization, larger will be the decentralization of authority. Smaller the size of an organization, smaller will be the decentralization of authority.

• Organization history: Decentralization depends upon the organization's history that how it was organized and grew. If the organization is established or grown up by a large number of people or reputed person then the rights and powers are to be decentralized. If the organization is established by the small group of people then the rights and power are to be centralized.

• The cost of decentralization: If the cost of decentralization is high, then the manager or superior centralize the rights and power. If the cost of decentralization is minimum or low then the right and power are to be decentralized.

• Philosophy of management: Some managers have low self-confidence, conservative attitude and traditional faith. Such types of managers centralize the rights and power but some managers have the modern concept and consider the democratic system. Such type of manager decentralize the rights and power.

• Control technique: If the organization has effective control system then the manager or superior decentralize the rights and power because subordinately is self-controlled. If the organization has an ineffective control system, then the manager or superior centralize the rights and power.

• Nature of decision: Organizational decisions are broadly classified into two types i.e. repetitive and non-repetitive. If the decisions are repetitive in nature, then the rights and power are to be centralized. If the decisions are not- repetitive or unique in nature then the rights and power are to be decentralized.

• Competencies of a subordinate:If more competent and experienced personnel are available at a lower level, the organizations can adopt and implement a policy of decentralization. Without having the competent personnel without facilitating efficient training and management development program to the staff members, decentralization process cannot be followed.

Differences between delegation and decentralization of authority

References:

Pokhrel, Dhurb Raj et.al., Business Studies-XII, Asmita Book Publication, Kathmandu

Poudyal, Santosh Raj et.al., Business Studies-XII, Asmita Book Publication, Kathmandu

Bhandari, Kedar Prasad, Business Studies-XII, Bundipuran Prakashan, Kathmandu