Decentralization is the accounting term which is used in the context of decision making. An organization where the decision making authority is not restricted with top level management but it is delegated to lower levels employees of the organization. Given below are some of the advantages and disadvantages of decentralization
Advantages of Decentralization
- Since the day to day work and decision with respect to such work is delegated to lower level managers the top brass can concentrate on main issues facing the company such as how to improve the sales of business, tackling competition, improving the overall profitability of the business, reducing employees attrition rate and so on.
- It helps in improving the overall motivation among employees because people in your company feel that they are also part of the company as they are taking decisions about certain aspects of the business of the company.
- It quickens the overall decision making in the company as there no single decision making power and hence there is less burden on everybody and thus it helps in improving the response rate towards outsiders like customers, competitors and so on.
- In this type of environment people who are closer to day to day activities take decisions and therefore chances of such decisions being correct are more and hence it improves overall efficiency of the organization.
Disadvantages of Decentralization
- There is overlapping of authority and hence it may lead to conflict between top level and lower level management which is not a good outcome for any company because coordination at all levels is at the core when it comes successful running of a business.
- It may be possible that people to whom work is delegated may not be competent enough to take such important decisions which in turn can put company into danger of losing its credibility and profitability.
- When you give employees more authority they began to except quicker promotions and enhanced salary and if company raise salary of small group of people than it can lead to conflict among workers at the same level and also lead to more attrition from the organization leading to overall disruption of the routine work in the firm.
As one can there are pros and cons of decentralization and hence it is not suitable for all types of business. An organization which is planning to adopt such structure should carefully look at the above points and then plan accordingly rather than making hasty move and adopting this structure just because some other company has done it successfully.