In an attempt to increase their effectiveness and efficiency, organizations apply to decentralization. The latter presupposes the diffusion of centralized authority throughout the organization. At present, decentralization has become a popular trend and a matter of survival for organizations across all industry sectors. It is also a logical decision for the rapidly growing organizations, which face difficulties with power allocation and control due to their complex structure and size. The extent of decentralization varies considerably across business entities. At the lowest extreme, lower-level employees and managers have little decision-making freedom (Garrison, 2006). At the highest extreme, in a highly decentralized organization, even lower-level employees have some power to make decisions (Garrison, 2006). The benefits of decentralization are obvious, but no less obvious are its drawbacks. The purpose of this paper is to review the advantages and disadvantages of decentralization in organizations.
Decentralization is a popular topic of discussion in modern organizational literature. In essence, decentralization is about pushing routine decisions lower down the organizational hierarchy (Singh, 2011). Simply stated, by decentralization most managers mean the process of delegating their power to their subordinates. Many managers believe that decentralization paves the way to improved performance, greater productivity, and enhanced creativity in the workplace, at least because centralization and accumulation of power in one hands is claimed to have detrimental effects on creativity, self-expression, self-realization, and innovativeness (Singh, 2011). Due to the elimination of unnecessary management levels, creative ideas find a faster way to top managers. At the same time, with the elimination of unnecessary management structures and the growing number of employees reporting to one manager imply the growing scope of delegation. Consequently, while more employees acquire more professional obligations and development opportunities, they also become more accountable in their actions (Singh, 2011). In any case, decentralization is always about relieving the responsibility burden on managers and empowering employees to make the decisions, which are closer to the action scene (Singh, 2011). As a result, decentralization becomes an important antecedent of employee empowerment, whereas managers can finally focus on the most important organizational problems (Hempel, Zhan & Han, 2012). This is what Garrison (2006) describes as “strategy, higher-level decision making, and coordinating activities” (p. 540). These, however, are not its only advantages.
Use your promo and get a custom paper on
"Advantages and Disadvantages of Promoting Decentralization".
Promoting decentralization is beneficial to organizations, since decentralization helps to improve the quality of decisions at all organizational levels. Employees who are empowered to make such decisions in a decentralized organization generally have a better view on the local situation than top-level managers (Garrison, 2006). Decentralization may not always contribute to improved strategic decisions, but it always creates the conditions needed to make relevant operational decisions (Garrison, 2006). Moreover, employees who have more freedom to make decisions spend less time meeting customers’ requests and addressing their concerns (Garrison, 2006). It is possible to say that promoting decentralization is a perfect way for large organizations to improve the quality of customer service. Decentralized and empowered employees enjoy their greater involvement in organizational decision making, displaying better initiative and morale (Singh, 2011). Decentralization remains one of the most powerful means to make and keep employees satisfied. In addition, decentralization favors the development of management talents and improved the balance of decisions within the organization, placing those who have better and more relevant information in charge of the most important operational actions (Finkler & Ward, 1999). Yet, even the process as popular and advantageous for organizations as decentralization does have its drawbacks.
One of the key risks of decentralization is that lower-level employees and managers who assume greater responsibility for organizational decisions may not have enough information needed to make such decisions workable. At the lowest levels of the organizational hierarchy, such employees may simply be incapable of creating and understanding the big picture (Garrison, 2006). The more decentralized the organization, the greater these risks become. In addition, lower-level employees and managers may experience difficulties with coordinating their decision making efforts (Garrison, 2006). Certainly, decentralized organizations can solve this problem by developing an effective communication strategy based on their mission, vision, and strategic objectives. Yet, it will take time and money to turn autonomous managers into a coherent operational mechanism.
It should be noted that, in decentralized organizations, the goals pursued by lower-level managers may not coincide with the goals set by the organization as a whole. In a centralized organization where responsibility, power, and decision making are focused in one hands, top-level managers find it easier to ensure that the goals of their lower-level subordinates and the strategic goals of the organization are closely aligned. Decentralization increases the likelihood of conflicting interests and goals (Finkler & Ward, 1999). Chances are high that empowered managers will use their position to pursue personal goals at the expense of the whole organization (Finkler & Ward, 1999). Certainly, none of these issues is irresolvable. Yet, decentralized organizations must be prepared to spend extensive costs on training and develop sophisticated systems of communication and reporting (Finkler & Ward, 1999). All in all, decentralization cannot be fast, and the extent to which the organization is ready to decentralize itself should be defined and evaluated, before the process begins.
In conclusion, decentralization looks like an extremely desirable phenomenon for the rapidly growing organizations. Decentralization enables such organizations to relieve the burden of responsibility on top managers, while empowering lower-level managers and employees to participate in organizational decision making. However, those organizations which choose decentralization must be ready to face its drawbacks. The latter include excessive autonomy of lower-level managers, the lack of congruence in the goals pursued by managers and the organization as a whole, as well as the need to establish sophisticated systems for communication and reporting. The best the organization can do to leverage the advantages of decentralization and minimize its consequences is by defining the extent to which it is willing to decentralize. The decision should be made and approved before the organization launches its decentralization strategy.
- Finkler, S.A. & Ward, D.M. (1999). Cost accounting for health care organizations: Concepts and applications. Aspen: Jones & Bartlett Learning.
- Garrison, F. (2006). Managerial accounting. New Delhi: Tata McGraw-Hill.
- Hempel, P.S., Zhang, Z.X. & Han, Y. (2012). Team empowerment and the organizational context: Decentralization and the contrasting effects of formalization. Journal of Management, 38(2), 475-501.
- Singh, H. (2011). Organizational behavior. NY: VK Enterprises.
