Reasons for decentralisation in an organisation
Meaning of Decentralisation
It refers to the systematic delegation of authority to a lower level in the organisation. It takes place when delegation is made to all the employees at a particular level. Its purpose is to give greater autonomy to the lower levels. Decentralisation is optional. Management may not think it necessary to decentralise authority. It can be effective in big organisations.
Factors Determining the Degree of Decentralisation
The various factors that determine the degree of decentralisation in an organisation are given below:
1. The greater the number of decisions made at the lower levels in the organisation, the greater the degree of decentralisation.
2. The closer the level at which the decision is made in relation to the point where the problem arose, the greater the decentralisation. Suppose a customer in Maharashtra has a problem, and the western division manager is authorised to make the necessary decisions. Then to that extent the company is more decentralised than if the boss in New Delhi had to make the decisions.
3. The more important are the decisions that can be made at the lower levels, the greater the decentralisation. For example, a company in which division managers can make equipment purchase decisions for up to Rs. 500,000 is more decentralised than one in which they are authorised to make these decisions up to a limit of Rs. 1,00,000.
4. The greater the breadth of decisions in terms of the number of functions they cover, the greater the decentralisation. Thus, the company in which division managers are authorised to take production, marketing and personnel decisions is more decentralised than one in which the managers can take only production and personnel decisions.
5. The less a subordinate has to check with his superior before taking decisions, the greater the decentralisation. Thus, a company in which a manager does not have to check at all with his superior is more decentralised than one in which the manager must get most of his decisions approved beforehand.
6. The greater the discretion permitted by the company’s policies. procedures and rules, the greater the decentralisation. Standing plans such as policies, procedures, and rules, tell employees how they are to proceed in a given situation and therefore can limit their authority.
7. The narrower the breadth of the controls imposed on managers, the greater the decentralisation. Thus, a company in which each product division manager simply has to report once or twice a year on the rate of return his division has earned on its investment is more decentralised. The division in which a variety of day-to-day production, marketing, and personnel decisions are monitored is less decentralised. In the typical “decentralised” company, controls are imposed selectively, carefully giving the manager enough “breathing space” to do his job his way. But they still provide enough feedback to the top-mangers to allow for early identification of problems.
