What is decentralization of authority? Explain the pros and cons of decentralization of authority.

  Concept of Decentralization

Decentralization may be defined as the dispersion (distribution) of functions and powers from a central authority to regional and local authorities. Under it, the decision-making authority is delegated to lower levels. It distributes authority and responsibility to different levels of an organization. It is particularly effective where important knowledge is dispersed throughout the organization and responsiveness to the changing needs of different customer segments is important.

Some of the major definitions of decentralization are given below.

Koontz and Weihrich"Decentralization is the tendency to disperse decision-making authority in an organized structure.

Louis A. Allen" Decentralization is the systematic and consistent delegation of authority to the level where the work is performed.

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 summary, decentralization is the transfer of decision-making power from upper to lower level.

The following conditions are essential for the success of decentralization.

• Supportive top management Large, diversified and complex organization

• Dispersed organizational activities

• High capacity of lower level

• Low cost of decentralization Effective planning and control

ADVANTAGES OF DECENTRALIZATION

Decentralization is the philosophy of systematic and scientific delegation of authority to the decision-making level. It facilitates the following advantages:

1. Quick decision: Decentralization facilitates fast and better decisions as decision-making authority is given to the unit managers where the decision needs to be implemented. Decisions made by functional managers become accurate which helps for organizational growth and diversification. Prompt decisions in business are more important to grab the opportunities. 

2. Easy communication: Employees at different levels become more responsible because of the authority delegated to their level. This minimizes delay in transmitting the information to different levels where it is essential. This system facilitates two-way communication which establishes better relationships between superiors and subordinates.

3. Employee morale and motivation: Decentralization encourages middle and lower-level managers to exercise free and independent decision-making power. They get the experience of making decisions in different situations which helps develop their competency, dedication, and creativity. This leads to high morale and motivation of employees.

4. Reduces workload: Decentralization reduces the work overload of top level managers. They can be free from routine jobs. Thus, top level management can concentrate its efforts on strategic issues. It helps to adopt the environmental changes and change management.

5. Facilitates growth and diversification: Decentralization increases the specialization of decisions as functional managers make the decision appropriate to their functional area. Such decisions made by functional managers become more effective which leads to functional efficiency. It facilitates the growth and diversification of products, activities, and markets. It helps to expand the network and profit centers.

6. Environmental adaptation: The business environment is dynamic which adds complexities to the decision makers. In such a situation, top-level managers must involve in strategic formulation. Decentralization facilitates authority to the middle level and lower level managers for a routine job. This facilitates top-level managers to concentrate in adopting new technology, and business practices. It helps to adapt to environmental adaptation.

DISADVANTAGES OF DECENTRALIZATION

Decentralization is not possible in each organization. It is necessary to consider the level of employees who have to use the authority. Unnecessary decentralization sometimes creates problems in the organization. Decentralization may have the following disadvantages i.e. limitations:

1. High cost: Under a decentralization system, more trustworthy managers and supervisors are required because they need to exercise their authority with their judgment. Decentralization demands highly skilled, experienced, and trained employees at each level. Such employees are costly as they require high financial and non-financial facilities. It increases the administrative and operating costs resulting decrease in profitability.

2. No uniformity in the decision: As decisions are made at the level of operation, different people with different interests, experiences, skills, and analytical capacities can make the decision according to their wishes. Such a decision may not be uniform. This reduces the chance of coordination.

3. Chance of conflict: Under this system, each manager is pressurized to increase the output of their level. Each department manager emphasizes increasing the output of their own department instead of overall organizational goals. This may increase the interdepartmental conflict. There may be a serious problem of coordination between the departments.

4. Poor communication: Under decentralization, departments can be formed at different places on the basis of the convenience of departments. Being independent in making decisions, departments do not think the importance of other departments or units. Each department may have its own standard and procedure for job output. This creates a problem in smooth communication.

5. Greater risk: Decisions are made by subordinates at different levels on the basis of departmental necessity. All the decision-makers may not be equally competent and committed to optimal decisions. With low experience, skills, and confidence level, decisions can be wrong which may increase the risk of failure.

6. Chance of misuse of authority: Departmental and unit managers are autonomous to make decisions for their departments and units. There is poor control of central level management to the acts of departments. Departmental managers may misuse their authority which can create serious problems in the organization.