Decentralization offers several advantages, though relinquishing control may be difficult for a business owner accustomed to making all the decisions. There is always the risk that lower level managers will implement policies that are not consistent with their counterparts. Reduced cost—The standardised procedure and method helps in considerably reduction of office cost. About the Author Devra Gartenstein founded her first food business in 1987. Require Qualified Personnel: Decentralisation becomes useless when there are no qualified and competent personnel. They may even have goals that clash with the company's overall goals. They do not make any suggestions and just carry on with whatever has been conveyed to them.
Will use machines that are compatible with each other. This is because, often times, the issues and decisions that must be handled involve lower areas of the business. The introduction of personal leadership facilitates quick action, aggressive marketing and attainment of pin-pointed objective or purpose, 4. Decentralizing a business allows a company to pin point the weak links in their chain and, as a result, run the company more efficiently. The growth of the company greatly depends on the talented executives.
Develops the Quality of Managers The executives will get training and also opportunities to develop their talents. The side that could bring something innovative to the battlefield first usually … had a tremendous edge. If it is a young and a small it may be better to have centralized authority. However, decentralization can also create a kind of tunnel vision in lower level managers, who sometimes develop a bias toward considering the needs of their own teams and forget to think about the company as a whole. Decentralized billing is where various individuals have the responsibility to bill for their product or services from field locations. Improves Motivation Decentralization provides more chances for the executives to exercise initiative without any undue interference from the top executive.
Thus, centralisation implies that the decision-making prerogatives are retained by the higher managerial levels and not delegated to the levels where the work is to be performed. The success of a small enterprise depends upon the dynamic manager who single-handedly commands the running of the concern. This will enable bulk buying resulting in discounts and savings in transportation expenses. Any business that adopts rules or procedures for its employees to follow must have a mechanism in place to handle the enforcement and administration of those procedures. In an organization, centralized way of making a decision entails less autonomy to everyone except the central leadership. A central command structure derives from an autocratic style of management. It also facilitates diversification and the development of junior management.
It destroys initiative of subordinates. Finally, this form of structure eliminates confusion regarding who is accountable for the outcome of certain decisions. Gradually, as the business grows and the headcount expands, the organization begins to take on a different structure with departmental heads and other teams. One man takes all the decisions and decides the modes of implementing them. Decentralization is advantageous in that it allows a companyto simplify expansion, delegate and divide responsibilities amongdepartments, and improve diversity and product emphasis. If many employees and levels in the organization get involved in decisions, more potential exists for conflict and difference in implementation.
Centralisation of authority puts the whole responsibility on the shoulders of an executive and his immediate group. Increase Social Net Product Decentralization may result in an increase in the managerial social net product, i. In such cases authority is decentralised to the regional units to render instant service taking into account the price, quality, delivery, novelty, etc. In addition, businesses can benefit from economies of scale with respect to internal transactions. Further, there is difficulty spreading innovative ideas, and lower level managers don't always see the big picture, which can have an impact on goal clarity as well as consistency and congruence of actions with desired goals. Disadvantages of Decentralisation : Decentralisation can be extremely beneficial.
In that case, personnel function will be deemed to be centralised. The overall atmosphere tends to boost employee morale leading to greater job satisfaction than the strict confines of a centralized setup. On the other hand the company which has been established with lower investment and capital can not reduce the operating cost with the help of the centralized human resource systems. This causes these managers to begin competing with each other, and possibly doing things that are unethical in order to pull ahead and look better in front of upper management. The work of a department may be of a confidential nature and there is no guarantee that its secrecy will be maintained. The advantages and disadvantages of centralization depend on company culture, type of business and the individual personalities at play. Flexible: As the nature of centralized human resource system is concerned, it handles all sorts of company emergency without any additional effort.
Equitable distribution of work load is possible. And finally, if the upper does not have much in the lower level ability to make and execute properly, then a centralized structure would be beneficial. This accountability causes top managers to drive each other to peak performance. Advantages and Disadvantages of Decentralization Despite the perceived advantages of centralized business structure and leadership, some companies have begun to explore decentralization in management. So, the degree of decentralisation is determined by the authority given. Reliance on the Manager: Decentralized organization has to place undue reliance on the efficiency of the divisional managers. There is always the chance of authority abuse and mismanagement on the part of these lower level managers, especially if the company does not have an effective control and performance evaluation system.
Centralisation of authority has certain disadvantages also. This is the main reason that many companies choose against decentralization. While on the other hand, an organizational structure is known as decentralized if the decisions that are made at lower levels and passed through strict rules, procedures and policies, but still leave some of issues are left for lower-level management. No Secrecy—Secrecy is not possible in centralised set up organisation because here orders and decisions flow from one place and are conveyed to all. Centralization is generally successful in small-scale enterprises. Executive Development: When the authority is decentralised, executives in the organisation will get the opportunity to develop their talents by taking initiative which will also make them ready for managerial positions. Effective Control and Supervision Decentralization leads to effective control and.