Disadvantages of Decentralisation

Topics: Decision making, Management, Decentralization Pages: 8 (2773 words) Published: May 20, 2013
6 main disadvantages of decentralisation
(1) 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...
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