Importance of decentralization is that it helps in the development of managerial talent, quick decision making reducing a burden on top management, development of initiative, growth and better control. Decentralization is much more than a mere transfer of authority to the lower levels of the management hierarchy. It is a philosophy that implies selective dispersal of authority because it propagates the belief that people are competent, capable and resourceful.
Decentralization is a fundamental step and its importance can be understood from the following points:
Develops initiative among subordinates: Decentralization helps to promote self-reliance and confidence amongst the subordinates. This is because when lower managerial levels are given the freedom to take their own decisions they learn to depend on their own judgment.
Develops managerial talent for the future: Formal training plays an important part in equipping subordinates with skills that help them rise in the organization but equally important is the experience gained by handling assignments independently.
Quick decision making: The management hierarchy can be looked upon as a chain of communication. In a centralized organization because every decision is taken by the top management the flow of information is slow as it has to traverse many levels.
Relief to top management: Decentralization diminishes the amount of direct supervision exercised by a superior over the activities of a subordinate because they are given the freedom to act and decide albeit within the limits set by the superior.
Facilitates growth: Decentralization awards greater autonomy to the lower levels of management as well as divisional or departmental heads. This allows them to function in a manner best suited to their department and fosters a sense of competition amongst the departments.