The term decentralization implies that the authority is orderly assigned across the organization. Unlike centralization, the authority is not retained only by the top management. In fact, in a decentralized organization, the top level is only responsible for the major decision-making and growth opportunities. Whereas, middle to lower-level managers and team members are liable for daily operations. This approach lets the organization maintain a competitive edge in the market. Undoubtedly, delegating powers across various levels brings more flexibility to the organization.
There are several more benefits to this strategy. We shall analyze them in the section dedicated to the advantages of decentralization before moving on to explore its disadvantages to complete our study. Let’s get rolling.
What are the Advantages of decentralization?
With decentralization in an organization, the employees at all levels are allowed to provide input, which improves the efficiency of the operations. Additionally, this brings innovation and promotes collaboration. The following are some other advantages of decentralization.
1. It promotes diversification
There are various constraints to centralization. One such restriction applies to the diversification of control. There’s no such problem with decentralization. In fact, the authority of decision-making is delegated to managers at middle and lower levels, allowing them to explore various activities, products, and markets.
This diversity of power lets businesses seek multiple opportunities. In the long term, it brings more profits and boosts brand image. Not only this, it allows them to distinguish themselves in the market.
2. Decentralization reduces the burden on top management
Top management makes important judgments that have a significant impact on the organization. With centralization, the top-level executives are overburdened with responsibilities. They are expected to make every decision for the organization. While it might allow them to retain more control, it is not necessarily productive.
Therefore, decentralization is practiced in the organization to lessen the load on top management. It allows them to invest more time in policy framing and making critical determinations. The matters that are not essential are taken care of by the other levels. This allows middle and lower-levels managers to gain valuable experience and expertise.
3. It makes the decision-making process quick
In a decentralized organization, the low and mid-level employees don’t have to wait for the commands of top-level executives. They have the power to make decisions regarding their department. This is one of the major advantages of decentralization as the team members working in their departments can make better judgments related to it.
Firstly, they see the reality and know what worked for them and where the improvements are needed. Secondly, their awareness of their situation lets them make accurate conclusions. Lastly, the delay in information transmission is reduced, promoting quick and effective decision-making.
4. Decentralization ensures better control
Lower-level managers have work assignments where they can make findings suitable to the changing requirements. This way, they make independent decisions that improve work efficiency. Furthermore, they have a thorough knowledge of their processes, allowing them to take corrective action.
Also, the top management has a system in place that evaluates the performance of the low and mid-level managers making independent conclusions. This, as a result, ensures better control and supervision.
5. It improves employee morale
Believe it or not, decentralization empowers employees and boosts their morale. It encourages team members to participate and make autonomous decisions. The independence and responsibility given to employees in the decentralized organization are well received by them.
It makes them more accountable and the system more transparent. Also, the success of the organization depends on its workers, so empowering them not only retains but also motivates them.
What are the Disadvantages of decentralization?
We covered the praises of the concept, but that’s just one part of the story. There are several drawbacks associated with decentralization you should keep in mind. They are listed below:
1. Decentralization suffers from a lack of uniformity
Lately, the business world has realized that giving up on uniformity brings creativity. That’s true, but only to some extent. Uniformity is essential to let all levels of the organization know what is expected of them. But, with decentralization, uniform policies are not followed.
Each department has its own policies that differ from the other departments in the same organization. This introduces complexity that otherwise could be made simple by bringing uniformity.
2. It incurs a higher cost
Despite all the benefits, decentralization brings to the organization, it remains an expensive approach.
Firstly, the decision-making is delegated to individual departments, so it requires qualified personnel to take responsibility. This incurs high costs as each department is given access to specialists.
Secondly, each department focuses on becoming self-sufficient, so there is a duplication of activities. This results in inefficient use of organizational resources. Lastly, the administration expenses increase in the decentralized organization.
3. It leads to coordination problems
As we have discussed earlier, in decentralized organizations, no uniform policies and procedures are followed. Thus, the same tasks are performed differently by each department in the same organization. This gives rise to coordination problems. It is crucial for the organization as a whole to focus on achieving its strategic goals. But with decentralization, ensuring that each department works consistently becomes a tough task.
4. Decentralization is prone to conflicts
With the autonomy of each department across the organization, there are conflicts. Each department is tempted to customize its operations to reach maximum efficiency. They may take shortcuts that might impact the operations of the other departments. This eventually leads to conflicts, making decentralization prone to it.
Also, there is a possibility that the self-centered units might end up neglecting organizations’ broad interests. While proper business technology and management might help prevent this up to a scale, it could still happen.
5. It may diverge from the company’s larger interest
In a decentralized institution, the performance of each department is measured. Whereas the centralized organization measures the overall performance.
The decentralized approach becomes a problem when departments prioritize their goals over the organization. This results in divergence from the company’s vital goals. Even though departmental autonomy brings more innovation to the organization, the downside is that it may leave the departments operationally isolated.
Additional Advantages and Disadvantages of Decentralization
We already discussed several points above in detail. If you need a quick list of the benefits and drawbacks of decentralization, you can check the table given below:
| Advantages of Decentralization | Disadvantages of Decentralization |
|---|---|
| 1. Empowers local management | 1. Inconsistency in decisions |
| 2. Faster decision-making | 2. Duplication of work |
| 3. Fosters innovation | 3. Difficult to maintain control |
| 4. Enhances customer responsiveness | 4. Potential for internal conflict |
| 5. Develops managerial skills | 5. Can be more costly |
| 6. Increases job satisfaction | 6. Strain on resources |
| 7. Reduces administrative burden | 7. Misalignment with corporate goals |
| 8. Encourages competition | 8. Need for strong communication |
| 9. Tailoring products/services locally | 9. Risk of poor coordination |
| 10. More adaptable to change | 10. Quality may vary |
| 11. Accountability at all levels | 11. Requires skilled managers |
| 12. Better understanding of the local market | 12. Potential knowledge gaps |
| 13. Greater operational efficiency | 13. Slower implementation |
| 14. Positive impact on morale | 14. Risk of regional favoritism |
| 15. Ensures diversification | 15. Greater risk of data breaches |
| 16. Facilitates faster growth | 16. Higher degree of uncertainty |
| 17. Improves service delivery | 17. Difficulty in maintaining standards |
| 18. Enhances creativity | 18. Loss of economies of scale |
| 19. Better crisis management | 19. Can complicate planning |
| 20. Local expertise leveraged | 20. May result in an internal competition |
| 21. Easier identification of talent | 21. Incomplete information sharing |
| 22. Greater motivation |