Until todate, many senior managements still differ on the topic of centralization or to decentralize.

This article looks at the advantages and the disadvantages of decentralization.

Advantages:

1. Easier for senior management to delegate responsibility if the enterprise is split into division. Motivator gurus alway believe that by delegating responsibility to manager, this will motivates them to greater heights in terms of working harder, think and innovate bettter;
2. Decisions will be made more quicker as the divisional managers need not pass information up to top management and then wait for instructions to be passed down;
3. Divisional manaers will make better decisions than centralized management as the divisional managers are closer to the day-to-day operation of the business and
4. By decentralizing or delegating certain duties to others, top management will then be free to concentrate on strategic issues or on company’s core competencies;
5. Easier to monitor the performance of products and or regions if the business is divisionaized on product and or regional lines;
6. Easier to allocate resources to a division than to a product or region which is contained within a centralized structure and
7. Last but not least, it is easier to expand, close or move a division.

Overall, the main advantages claimed for decentalization/divisionalization are improved motivation, communication, control and decision-making.

So what about the disadvantages of decentralization?

This includes the following:

1. If decentralization is not properly executed, this can results in non-goal congruence. There can be two(2) scenario namely: (a) In performance-related pay environment the divisional manager may be tempted to put their own division ahead of the group or (b) in non performance-related pay environment, as they are autonomous, they may take decisions which seems sensible from a divisional point of view but which are in conflict with the group’s view
2. One common disadvantage of decentralization is the duplication of common infrastructure like administrative,accounting, legal activities,etc. This will result in higher additional costs.
3. By giving too much autonomy to the divisional manager might result in the loss of control by top management.

However, the aforesaid disadvantages can be mitigated vide:

• setting reward systems which encourage the divisional manager to act in a way which is good for the group as well as for themselves hence encouraging goal congruence;
• using uptodate Information Systems tools such as networks & distributed databases and modern information systems both to help reduce the costs of duplication and to enable top management to access divisional records whenever they want to.

So are you going to let your organization proceed with decentralization?

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