Decentralization refers to a company’s top management delegating authority to subunits of the company. A decentralized system is one which requires multiple parties to make their own independent decisions. It is the movement of departments of a large organization away from a single administrative center to other locations. Subunits include divisions, subsidiaries, profit centers, investment centers, and so on.
A benefit of decentralization is having the decision makers closer to the markets in order to make better and faster decisions.
- Improves morale and motivation as managers at a lower level are able to see by themselves the results of their own decision making and actions.
- The company can benefits from better breed/quality of managers as they are exposed to making the decision making. It helps in the manager’s development and potential.
- It makes the managers motivated and happy as they are able to assert their voices in the organization.
- Enable quicker actions and decisions to be making as the decision making is closest to the situation. With such quicker actions decisions, it can result in more effective response/control over business operations and processes.
- Decentralization makes for democratic management and flexibility of operations.
- Decentralization results in effective supervision because managers at the lower levels have complete authority to make changes in work assignment, to take disciplinary action, to recommend promotions and to change production schedule.
- Decentralization improves organizational communication and efficiency because there are fewer levels of authority.
- Decentralization facilitates growth and diversification of products and markets.