Which of the following is disadvantage of decentralization?

The traditional structure of many businesses is to centralize authority in the hands of a few people, typically a president, CEO, board of directors or senior-level executives. In this type of organization, power is concentrated with the leadership, and rank-and-file workers have little to no say in how things are handled on a daily basis. However, in recent years, there’s been a push toward decentralized organizations, in which mid- and low-level managers are given more authority in making decisions, and staff employees feel more empowered because their ideas are factored into the day-to-day operations. As a business owner, it’s important to understand the benefits and drawbacks of a decentralized organization.

Decentralized Organization Elements

In a decentralized organization, you empower middle and low-level managers to make decisions that affect productivity, efficiency and performance standards. Instead of handing down decisions from the top and expecting your managers to implement those decisions, you communicate your vision and expectations and you trust your management to figure out the most effective methods of achieving your desired goals.

Comparison of Centralized and Decentralized Organizations

Let’s say that John is a mid-level manager at XYZ Corp. He wants to make a deal with a vendor that’s offering an attractive price for its services. In a centralized organization, John would have to make a request to senior management and wait for them to review the request and then approve or disapprove. The delay in approval could cost John the sweet deal.

In a decentralized organization, John would have the authority to make the deal with the vendor without having to obtain approval from those above him. In some instances, that authority is limited to a specific amount of money, but in most instances, John would have the power to approve the deal right away.

Advantages of a Decentralized Organization

The primary advantage of a decentralized organization is that managers are able to make quick decisions that can save your company money. By empowering your managers, you trust their instincts and abilities, because you know they understand the daily work process better than you do. Another advantage is that it lightens your workload and frees you up to develop strategic plans for the future of your business.

If you’re constantly having to micromanage the daily activities of your company, you will quickly become overloaded with problems and conflicts, which leaves you little time to deal with the major strategies that will guide your organization. When you empower your managers, you also motivate them to work harder, because they want to prove that your trust in them is well-placed. Increased motivation can lead to better communication between managers and staff members, and greater morale in the workplace.

Disadvantages of a Decentralized Organization

The main disadvantage of a decentralized organization is that you lose control over the day-to-day activities of your company. Maybe “lose” is too strong a word, but you are ceding authority to your managers, which means that you trust their instincts, skills, and talents. However, that can backfire, if your managers aren’t up to the task, which can cause conflict between managers and staff, and between you and your managers.

Another disadvantage is that your managers may have a different agenda from yours, which can create a schism between the goals you want to advance and the goals they want to advance. For example, a mid-level manager may be more interested in growing his department than in meeting performance standards.

Problem of Co-Ordination: Because authority is dispersed throughout the organization, decentralisation of authority causes problems of coordination.

More Financial Burden: There is a greater financial burden associated with decentralisation and a small business cannot afford to employ specialists in a variety of fields.

Require Qualified Personnel: When there is no qualified and competent personnel, decentralisation becomes useless.

Conflict: With decentralization, divisional heads are under more pressure to maximize profits at all costs. This can lead to conflicts between managers as they meet their new profit goals.

Delegation of authority and responsibilities is commonly referred to as decentralization, in which the organization is divided into different sections and departments to help the organization grow scientifically and with a purpose of direction, resulting in harmony in relationships and a healthy environment, which is typically absent in centralized systems of organization. The term "decentralization" refers to the dispersal of power, and it is the process of assigning specific responsibilities to subordinates. When such a responsibility is delegated to subordinates, it is always accompanied by an appropriate authority, which is also empowered to the executive and other lower-level assistants. As a result, decentralization refers to the assignment of responsibility and delegation of management to various executives and other subordinates at lower levels to make the lower level more accountable and capable of doing the task committed to them.

Advantages of Decentralization

1. Distribution of the Executive's Burden

The decentralized setup allows the executive to share his burden with others at a lower level, freeing him to focus on more pressing and critical tasks that require his full attention. This smoothens the job, speeds it up, provides a friendly atmosphere, improves comprehension, and fosters team spirit among all individuals who work for the company.

2. Greater efficiency and output

Because the responsibility comes with authority and power, everyone entrusted with it takes great care to fulfill it to the best of his ability. This level of attention and caution and the enthusiasm they approach their work to ensure greater efficiency and productivity.

3. Expansion Facility

It allows for further corporate expansion because the decentralized setup frees up top management personnel from routine and other responsibilities, focusing on fresh thinking and ideas. This provides for plane expansion to be achieved with little difficulty. The development of modern business houses directly results from the decentralized organizational framework.

4. It breeds innovation and flexibility.

More creative individuals can make their thoughts and be encouraged to develop and develop out-of-the-box solutions because there is less bureaucracy and obstacles to the open flow of ideas. Aside from that, those in specialized or local departments have a greater awareness of their work and the market's unique needs and challenges, allowing them to deliver appropriate solutions to react to changes in their area or market more quickly.

Despite the benefits of decentralization, there are specific difficulties in applying it to all circumstances and under all conditions. The actual hurdles to decentralization are as follows:

1. Issues with Coordination

Decentralization allows for the management of highly competent individuals to be carried out by highly skilled individuals. Because of the fragility of their financial holdings, it is probable that such individuals will be unable to come to an agreement.

2. Factors from Outside

Decentralization exacerbates the problem of inter-unit coordination.

3. Increase the cost of administration

Decentralization isn't always possible. External forces, such as widespread strikes, make this difficult.

4. Operational costs are high

It computes the authoritative expenses on the basis of the assumption that well-paid administrators must be selected for the position.

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