Advantages and disadvantages of decentralization

Decentralization is a type of organizational structure where the top management assigns daily tasks and decision-making authority to intermediate and lower employees.

Thus, with more time available, the senior management may concentrate on making important decisions. Businesses frequently feel that decentralization is necessary to maintain operational efficiency.

In other words, “decentralization” is the term used to describe the transfer of power and responsibility. Decentralization divides an organization into various sections or departments that help it grow scientifically and directionally, creating a harmony of relationships and a healthy environment not typically found in centralized organizational systems.

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Types of decentralization

Political decentralization 

This encompasses the transfer of executive, monetary, and political authority by the people or their chosen representatives. Democratic decentralization gives individuals and their representatives greater say in how policies are created and carried out. 

Decentralized administration 

It aims to reassign power, responsibility, and financial resources to various governmental echelons. Deconcentration, delegation, devolution, and privatization are its four subtypes.

Fiscal decentralization

In this kind, local governments get general tax income from the federal government for general or targeted purposes. And local income increases through property taxes, sales taxes, or indirect taxes.

Economic or market decentralization 

This is the most complete form of decentralization from a government perspective. These include privatization and deregulation.

It makes it possible for enterprises, community organizations, cooperatives, private voluntary associations, and other non-governmental entities to carry out tasks that formerly fell solely or mostly on the shoulders of the government.

Examples of decentralized organizations

Accounting Teams

While many accounting operations are part of decentralized organizations, small teams of accountants and financial professionals may be based in several different locations.

At these locations, accountants working there can make group decisions such as Hours of Operation and Operating Principles.

Fast-food chains

Though some fast-food chains have locations across the country, they often have decentralized management systems that focus on specific regions.

For example, a fast food chain location might have a general manager who makes decisions related to the day-to-day operations of the store, such as B. Creating employee work schedules, hiring employees, and enforcing policies.

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Disadvantages of decentralization

Here are the limitations of decentralization:

1. Decentralization can limit the efficiency and effectiveness of work. During emergencies, lower and mid-level managers face complex, unprogrammed problems and are unable to make decisions due to limited authority.

2. Decentralization might result in higher government spending and high initial administrative expenses. Decentralization is impossible since all levels have the same rules and practices.

3. The pressure to increase production and revenue can increase conflicts between different sectors. So, decentralization can lead to a lack of organizational unity.

4. Service specialization such as accounting, human resources and engineering, cannot be achieved through decentralization.

5. It is difficult to maintain a fair distribution of work among all agencies involved.

6. Subordinate level managers who lack the necessary skills and abilities may make poor decisions that raise risks and cause financial loss.

Advantages of decentralization

1. Increase in innovation and flexibility: More creative individuals are encouraged to think freely and design and develop original solutions. Aside from that, those in specialized or local departments have a greater awareness of their work and the market’s unique needs and challenges, allowing them to deliver appropriate solutions to react to changes in their area or market more quickly.

2. Expansion of the facility: The decentralized structure frees management from day-to-day and other responsibilities, allowing them to focus on fresh thinking and new ideas, enabling further business expansion. This ensures that level expansion is achieved with little difficulty.

3. Greater efficiency and output: Responsibility carries authority and power, so those who are entrusted with it take care to perform to the best of their ability. This level of care and attention and enthusiasm for their work makes them more efficient and productive.

4. Distribution of the Executive’s Burden: The distributed nature allows leaders to share their burden with others at lower levels, allowing them to focus on more urgent and important tasks that require their full attention. This makes work easier and faster, ensures a friendly atmosphere, makes it easier to understand, and promotes team spirit among everyone.

5. Increased Productivity: Increased competitiveness between different departments to outperform others, ultimately leading to increased productivity.

6. Personal Improvement: Decentralization promotes autonomy and trust among subordinates through constant questioning and finding solutions to day-to-day activities. It increases the morale and motivation of the subordinates.

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How to build a decentralized organization 

Try to follow these steps to build a decentralized organization:

1. Establish the company values

To build a decentralized organization, you must first establish your company’s values and culture. Company values can guide professionals in new leadership roles, and a strong work culture reinforces your company’s values.

2. All employees must be included

To benefit from a decentralized leadership style, it is important to involve different experts in the decision-making process. A decentralized organization can make decisions as a team or by gathering the input of multiple employees.

3. Training is important

Prioritize training within your organization so that each employee understands their responsibilities and expectations. Establishing a training program to educate employees about the company culture and management structure helps professionals become familiar with the company’s work environment and often prevents conflicts.

4. Let there be teamwork

This is because decentralized organizations rely heavily on teamwork and mutual respect among professionals, it’s important to develop a workplace culture that values collaboration.

5. Encourage Growth

Decentralized organizations tend to work best when each employee can advance their career and develop new skills. Encourage growth in the workplace by rewarding and providing growth opportunities for those who acquire new skills.

Conclusion

Delegating authority to subordinates increases motivation. Employees are more involved in decisions about their work. But, it also comes with risks. Problems such as duplicated functions and decisions often arise. In addition, top managers may lose control over their subordinates.

Frequently Asked Questions (FAQs)