What Is The Importance Of Decentralisation To An Organization? (2024)

The importance of decentralization to an organization are as follows:

Decentralisation can be defined as even and systematic distribution of authority at every level of management. Under decentralisation every employee working at different levels gets some share in the authority. Decentralisation is a policy matter and managers plan in advance whether to go for centralised or decentralised policy.

Sometimes company follows a mixed policy of centralisation and decentralisation. They keep the important matters such as financial decisions, structural decisions with the top level management only and share the common decisions with the people working at different levels as generally an organisation can never be completely centralised or decentralised.

Relation between Delegation and Decentralisation:

Decentralisation is extension of delegation. In delegation we multiply the authority with two whereas in decentralisation the authority is multiplied by many because systematic delegation taking place at every level will result in evenly distribution of authority and responsibility at every level and result in decentralisation. If delegation is restricted to certain levels only then there will be no complete decentralisation also.

For example, if the directors give the responsibility to production head to complete the target of 50,000 units per annum and authorise him to hire the required workers, decide their salaries and working conditions. The production head further shares his responsibility and authority with the production manager to achieve the target and select the workers. The production manager shares his authority and responsibility with the supervisors who directly deal with the workers and authorise them to select the workers.

This sharing of authority and responsibilities between directors and production head, managers and subordinates will result in systematic distribution of authority at every level automatically. That is why we say systematic delegation leads to decentralisation. In delegation the authority is shared between two persons only, i.e., manager and subordinate whereas in decentralisation many people at every level are involved, i.e., directors, production head, manager, subordinates, etc.

Delegation is Necessary in Every Organisation but Decentralisation is Optional:

Delegation is an essential part of every organisation. No organisations can work without using the concept of delegation as there is no individual who can do all the work himself only.

Delegation is a tool to get the work done effectively and efficiently through others whereas decentralisation is required when an organisation grows and expands and only top level cannot manage it.

Especially in the present era due to liberalisation and globalisation fast decision is needed and quick decisions can be taken through decentralisation only as it provides greater flexibility and freedom of action but still many organisations are working with little or no decentralisation. It is a matter of choice and preference of top level management and not compulsory.

Importance of Decentralisation:

1. Develop initiative among subordinates:

Passing of authority at middle and lower level shows the trust and faith of top level in their subordinates and this trust and faith motivate the employees working at different levels as they are allowed to take decisions without seeking the approval of superiors.

2. Develop managerial talent for future:

In the decentralisation managers working at lower and middle level also learn the art of making decisions. They get the experience of performing activities of top executives and learn to manage the authority given to them. So decentralisation process prepares the managers working at lower and middle level to perform the task of top level. So, whenever there is vacant job position at top level management, the managers working at lower or middle level can be promoted. This is how it levels talent for future.

3. Quick decision-making:

In the decentralisation process decision-making is not restricted in few hands only but decision-making power is entrusted to all the managers who are taking actions or performing the activities. This leads to faster decision because employees who have to perform the activities are allowed to take decision also.

4. Relief to top level management:

In the process of decentralisation top level managers are not overburdened with the responsibilities and authority as they systematically pass the authority and responsibilities at different levels and they become free to concentrate on core and important issues.

5. Facilitates growth:

Decentralisation grants more autonomy or freedom to lower level. This helps the subordinates to do the work in the manner best suited for their department. When each department is doing to their best then productivity increases and it will generate more revenue which can be used for expansion.

6. Better control:

In decentralisation employees working at different levels take their own decisions and they are personally accountable for their decisions, they cannot pass the blame to their superiors. With decentralisation better control can be exercised through Score Card, Management Information System, etc.

7. Promotes initiative and creativity:

The initiative directly depends on the authority. When the employees at every level are given greater degree of autonomy and authority according to their responsibilities, this helps them to take initiative. On the other hand, when lower and middle level executives are performing the task of top level executives then it brings creativity.

8. Improved team work:

In decentralisation all the managers and employees are sharing the decision-making powers; all are given some kind of autonomy and freedom of action. This sharing of decision and freedom of action integrate the employees as one team and develop team spirit among the employees.