Disadvantages of Decentralisation free essay sample

The success of decentralization will depend upon the quality of personnel manning the decentralized units. In those cases where the training, experience, education etc of the employees are inadequate, decentralisation of authority and of decision making would be harmful for the enterprise. There will be wrong decisions, confusion, contradictions etc. (2) Decentralisation becomes uneconomic and unwieldy unless the organisation is large and strong enough at the top to cope with a decentralised structure. Particularly for a small organisation decentralisation is not at all desirable because it would be easier and more economical to administer the enterprise on a centralized basis. (3) When an organisation expands through internal growth, decentralisation is not necessary and may be harmful. Unlike external expansion, in this situation no desire for absolute autonomy pre-exists. (4) In situations of emergency or trouble, decentralised administration is ineffective. It is costly and time consuming to control an emergency situation which affects a vital business area under a decentralised plan. Such decisions have to be taken at the top, and excessive decentralisation may lead to too much of consideration and delay before the problem is brought to the attention of the central or top authority. (5) In the absence of adequate information, decentralised administration tends to become weak. Decentralised decision making depends upon the quick availability of information pertaining not only to the particular decentralised unit but also to the other related activities and unit. In the absence of this ancillary information decisions will lack coordination and unity amongst the different organizational units. 6) If it is not possible to break up the business suitably into profit centers or investment centers, then decentralisation may result in inadequate appraisal and control. In conclusion we may quote H. A. Simon, that some measure of centralisation is indispensable to secure the advantages of organisation, coordination, expertise and responsibility. On the other hand, the costs of centralisation must not be forgotten. Decentralization in Organizations: Learning Objectives: 1. Define and explain the term decentralization. 2. What are the advantages and disadvantages of decentralization in business organizations? 3. What are business segments? 4. Define and explain cost, profit, and investment centers. Definition and Explanation of Decentralization A decentralized organization is one in which decision making is not confined to a few top executives but rather is throughout the organization, with managers at various levels making key operating decisions relating to their sphere of responsibility. Decentralization is a matter of degree, since all organizations are decentralized to some extent out of necessity. At one extreme, a strongly decentralized organization is one in which even the lowest-level managers and employees are empowered to make decisions. At the other extreme, in a strongly decentralized organization, lower-level managers have little freedom to make decisions. Although most organizations fall somewhere between these two extremes, there is a pronounced trend toward more and more decentralization. Advantages/Benefits of Decentralization: Decentralization has many advantages/benefits, including: 1. Top management is relieved of much day-to-day problem solving and is left free to concentrate on strategy, on higher level decision making, and coordinating activities. 2. Decentralization provides lower level managers with vital experience in making decisions. Without such experience, they would be ill-prepared to make decisions when they are promoted into higher level positions. 3. Added responsibility and decision making authority often result in increased job satisfaction. Responsibility and the authority, that goes with it makes the job more interesting and provides greater incentives for people to put out their best efforts. 4. Lower level managers generally have more detailed and up to date information about local conditions than top managers. Therefore the decisions of lower level management are often based on better information. 5. It is difficult to evaluate a managers performance if the manager is not given much latitude in what he or she can do. Disadvantages of Decentralization: Decentralization has four major disadvantages: 1. Lower level managers may make decisions without fully understanding the big picture. While top level managers typically have less detailed information about local operations than the lower level managers, they usually have more information about the company as a whole and should have a better understanding of the companys strategy. 2. In a truly decentralized organization, there may be a lack of coordination among autonomous managers. This problem can be reduced by clearly defining the companys strategy and communicating it effectively throughout the organization. 3. Lower-level managers may have objectives that are different from the objectives of the entire organization. For example, some managers may be more interested in increasing the sizes of their departments than in increasing the profits of the company. To some degree, this problem can be overcome by designing performance evaluation system that motivate managers to make decisions that are in the best interests of the organization. 4. In a strongly decentralized organization, it may be more difficult to effectively spread innovative ideas. Someone in one part of the organization may have a traffic idea that would benefit other parts of the organizations, but without strong central direction the idea may not be shared with, and adopted by other parts of the organization Read more at http://www. accounting4management. com/decentralized_organizations. htm#kX2TyKXfLDTQ2pML. 99 Decentralization: Inspecting the Tradeoffs Decentralization generally comes into account to accouterment the disadvantages of centralization. Although a decentralized command anatomy does advice to affected the cons of absolute administration such as abridgement of buying and authority, as you go bottomward the hierarchical alignment structure, it has its own different set of pros and cons. Let us analyze these claim and demerits of decentralization and put into angle the tradeoffs complex back adopting this administration concept. Advantages of Decentralization * The top administration and promoters of the close accept broadcast the controlling ascendancy and are therefore, larboard with added time to accompany the action for acumen the organizations abiding vision. Day-to-day botheration analytic is no best the better affair for the higher-ups. * Operational ability makes it easier for the alignment to abound overall. Activities such as franchising, about-face and hiring of advisers at the authoritative levels do not charge connected action from the top management. Consequently, amplification becomes easier, adopting basic and inducting added workforce become beneath time-consuming. Decentralization abundantly allowances huge organizations advance over several thousand advisers and geographic locations. Increased controlling ability anon translates into greater accountability. Bounded managers and alike added advisers added bottomward the accumulated ladder are motivated to booty buying of their work. Leadership qualities acquisition announcement alfresco the boardroom aural the silos and cubicles as well. The all-embracing atmosphere tends to addition agent assurance arch to greater job achievement than the austere borders of a centralized set up. Grooming approaching leaders is additionally abundant easier in such an atmosphere. Theres no best aloof one centermost of arete in the alignment but several pockets of arete abounding of accomplished bodies advance out beyond the organization. Ascendancy is delegated at the bounded level, which agency decisions are added abreast and accelerated admitting not consistently strategic. * Decentralized ability agency greater accuracy which in about-face ensures that beneath mistakes are made. A accommodation is usually a autonomous and participative aftereffect and if theres a fail up in progress, affairs are abundant that addition will atom it. While theres buying of success, decentralized ascendancy additionally ensures that there are beneath scapegoats. A aberration cannot be mapped to one distinct being (this can be a bankrupt beneath some added circumstances). * Perhaps, one of the best able outcomes of decentralization is the achievability of accessible innovation. With aptitude advance out beyond all levels and locations and the consistent networking possibilities, ablaze minds get calm with ideas, arch to addition rapidly. There are no authoritative bottlenecks or hindrances to barter of ideas. In a decentralized setup, it becomes accessible to atom the anemic links that are consistently affecting the basal lines. Therefore, it becomes easier to bung the leaks in time and accomplish abiding that the acquaint abstruse are finer conveyed to all added subunits aural the organization. * The acceptance of authoritative standards and best practices is additionally facilitated by a decentralized setup. Accuracy in action en sures that it is accessible for the assorted bounded teams to challenge and accept the methods and processes that brought success to a aggregation amid elsewhere. One of the above advantages of decentralized way of demography decisions is witnessed during a abrupt change in the bounded business ambiance such as the access of recession or bill devaluation, etc. Businesses are able to acknowledge and acclimate bound to these changes back ascendancy is decentralized. * Retail businesses like Walmart and auberge chains generally account from accepting a decentralized appearance of management. Businesses, area quick decisions amidst fast-paced changes in ambiance are the adjustment of the day, angle to account from decentralization. Disadvantages of Decentralization * Too abundant accent on localized way of demography decisions may end up abashing the bigger picture. As you go bottomward the accumulated ladder, advisers assume to lose afterimage of the authoritative vision. * A awful decentralized alignment can be the battlefield for ailing antagonism amid bounded managers arch to abridgement of co-operation and coordination. As a result, commutual functions may ache and absolute interdepartmental conflicts is difficult back ascendancy has been delegated. In addition, there is cher duplication of assignment (activities, processes and outcomes) that may appulse abridgement of scale. * Decentralization is not consistently a acceptable action to activate with, abnormally back the alignment is still to acquisition its basement in the market. Pushing decisions bottomward the bureaucracy after assessing if those levels in actuality accept the appropriate abilities and capabilities, is a aberration that could prove to be costly. * While decentralization promotes the advance of standards and best practices, altered managers apperceive them differently. Therefore, accomplishing of compatible organization-wide constant behavior becomes problematic. In case of emergencies that crave acceptance of organization-wide standards, the circulation of ascendancy and absolute opinions and accomplishments affectation a above hindrance. * Decentralization generally gives acceleration to an agent citizenry composed mainly of generalists and actual few specialists. External specialist consultants generally charge to be approved back the charge arises, added abacus to the costs. Assignment allocation and achievement appraisal are not constant in a acerb decentralized establishment. A subunit that is a amount centermost ends up accepting a raw deal, admitting acquirement breeding units acquire the allowances of a acceptable achievement by their subunit. It is difficult to admeasurement the achievement of amount centers and the associated advisers as they do not accomplish profits. * Businesses like fast aliment chains such as McDonalds area speciali zation is important and bendability in account is vital, angle to account from a added centralized assignment culture Source: http://www. shvoong. com/business-management/business-ideas-and-opportunities/2263925-advantages-disadvantages-decentralization/#ixzz2Oc5y6AfP Advantages of Decentralization The top management and promoters of the firm have distributed the decision-making authority and are therefore, left with more time to pursue the strategy for realizing the organizations long-term vision. Day-to-day problem solving is no longer the biggest concern for the higher-ups. Operational independence makes it easier for the organization to grow overall. Activities such as franchising, diversification and hiring of employees at the departmental levels do not need constant intervention from the top management. Consequently, expansion becomes easier, raising capital and inducting additional workforce become less time-consuming. Decentralization greatly benefits huge organizations spread over several thousand employees and geographic locations. Increased decision-making power directly translates into greater accountability. Local managers and even other employees further down the corporate ladder are motivated to take ownership of their work. Leadership qualities find expression outside the boardroom within the silos and cubicles as well. The overall atmosphere tends to boost employee morale leading to greater job satisfaction than the strict confines of a centralized setup. Grooming future leaders is also much easier in such an atmosphere. Theres no longer just one center of excellence in the organization but several pockets of excellence full of talented people spread out across the organization. Authority is delegated at the local level, which means decisions are more informed and accelerated though not always strategic. Decentralized power means greater transparency which in turn ensures that fewer mistakes are made. A decision is usually a democratic and participative outcome and if theres a goof up in progress, chances are great that someone will spot it. While theres ownership of success, decentralized authority also ensures that there are fewer scapegoats. A mistake cannot be mapped to one single person (this can be a demerit under some other circumstances). Perhaps, one of the most powerful outcomes of decentralization is the possibility of open innovation. With talent spread out across all levels and locations and the resulting networking possibilities, bright minds get together with ideas, leading to innovation rapidly. There are no bureaucratic bottlenecks or hindrances to exchange of ideas. In a decentralized setup, it becomes easy to spot the weak links that are consistently affecting the bottom lines. Therefore, it becomes easier to plug the leaks in time and make sure that the lessons learned are effectively conveyed to all other subunits within the organization. The adoption of organizational standards and best practices is also facilitated by a decentralized setup. Transparency in process ensures that it is easy for the various local teams to emulate and adopt the methods and processes that brought success to a team located elsewhere. One of the major advantages of decentralized way of taking decisions is witnessed during a sudden change in the local business environment such as the onset of recession or currency devaluation, etc. Businesses are able to respond and adapt quickly to these changes when authority is decentralized. Retail businesses like Walmart and hotel chains often benefit from having a decentralized style of management. Businesses, where quick decisions amidst fast-paced changes in environment are the order of the day, stand to benefit from decentralization. Disadvantages of Decentralization Too much emphasis on localized way of taking decisions may end up blurring the bigger picture. As you go down the corporate ladder, employees seem to lose sight of the organizational vision. A highly decentralized organization can be the battleground for unhealthy competition between local managers leading to lack of co-operation and coordination. As a result, interdependent functions may suffer and resolving interdepartmental onflicts is difficult when authority has been delegated. In addition, there is costly duplication of work (activities, processes and outcomes) that may impact economy of scale. Decentralization is not always a good strategy to begin with, especially when the organization is still to find its footing in the market. Pushing decisions down the hierarchy without assessing if those levels in fa ct have the required skills and capabilities, is a mistake that could prove to be costly. While decentralization promotes the spread of standards and best practices, different managers perceive them differently. Therefore, implementation of uniform organization-wide consistent policies becomes problematic. In case of emergencies that require adoption of organization-wide standards, the diffusion of authority and independent opinions and actions pose a major hindrance. Decentralization often gives rise to an employee population composed mainly of generalists and very few specialists. External specialist consultants often need to be sought when the need arises, further adding to the costs. Work allocation and performance evaluation are not consistent in a strongly decentralized establishment. A subunit that is a cost center ends up getting a raw deal, whereas revenue generating units reap the benefits of a good performance by their subunit. It is difficult to measure the performance of cost centers and the associated employees as they do not generate profits. Businesses like fast food chains such as McDonalds where specialization is important and consistency in service is vital, stand to benefit from a more centralized work culture. We have seen both the advantages and disadvantages of decentralization that hopefully makes clear what the tradeoffs could be in adopting this concept in an organization. However, most disadvantages of decentralization can be overcome by controlling the degree of authority delegated to the lower levels of the organization. Both centralization and decentralization have their extremes which is why, the key is to avoid those extremes and take the middle road. A combination of both concepts and a conscious deviation from the autocratic management style is recommended as a plausible strategy. Striking a balance between how much independence is given to individual business units and what kind of decisions remain under the central command could lead to a successful strategy. By Preeti Sunil Published: 2/13/2012