Advantages and disadvantages of decentralisation
This article explores some of the key advantages and disadvantages of decentralisation. In terms of decision-making, there are two types of organisational structures: centralised and decentralised. Decentralised systems are those where departments or locations have more autonomy and are accountable for their own operations, and performance.
What is decentralisation?
According to Griffiths (2022) decentralisation refers to the transfer of planning and decision-making functions of an organisation away from a central, authoritative location. It is about moving the control of an organisation or government from a single place to a number of smaller ones (Cambridge Dictionary, 2022).
Decentralisation is the process of passing decision-making authority and control away from a centralised authority (typically upper management) to other locations or departments within an organisation. It is generally implemented in organisations with a large number of employees in different locations or when different departments need to work together to achieve a common goal.
Decentralisation is the opposite of centralisation which refers to a higher concentration of control or decision-making authority at the top of an organisation. Decentralised organisations have a flatter structure, with more collaboration and cross-departmental communication.
Advantages of decentralisation
Better and timely decisions
There are many advantages of decentralisation. For example, decentralised organisations give decision-making authority to the teams closest to the work, resulting in better, and more timely decisions. It also helps organisations to spread out the decision-making authority to include more lower-level managers in the hierarchy.
Higher employee engagement
When employees report to a manager who is at a different location, they often feel disconnected from the company and its goals. Decentralisation gives employees more autonomy, which can boost engagement. It can also boost the formation of small cohesive groups because of the focus on local managers.
Better use of limited resources
Decentralised organisations can use their resources more efficiently as teams at each location will only focus on certain aspects of the business. They can use the best resources in the best place by the most suitable people.
One of the key advantages of decentralisation is creativity and innovation. When people are given the autonomy to try new ideas, they can come up with solutions that may not have been evident in a centralised structure. Likewise, creative ideas come from different corners which is helpful to establish cohesion across the organisation.
Support for top executives
As lower-level managers deal with operational level decisions in decentralised organisations, it helps reduce the workload of strategic level managers. Consequently, strategic managers can focus more on strategic issues such as growth, and retrenchment.
Burns (2022) states that as each team/department controls the amount of work required, they can dedicate more or less time to a task. This flexibility is very useful for many people in this current business world.
Disadvantages of decentralisation
There are some disadvantages of decentralisation that strategists need to take into account. For example, it can cause ineffective collaboration. When an organisation decentralises decision-making authority, it also decentralises the process of creating and executing business level plans. When departments are autonomous, they may not work together to solve larger issues or create synergies across the organisation.
Loss of efficiency
When autonomous departments have control over their budgets, they may not be as mindful of where their funds come from. This can lead to a loss of efficiency when funds are misused.
Loss of control
When departments have autonomy, the strategic managers and CEO may not have an accurate picture of how the organisation is performing. This can be problematic because it is difficult and time-consuming to determine if departments are successful or need help.
Lack of consistency
One of the major disadvantages of decentralisation is lack of consistency. Organisations often find it difficult to ensure consistent practices and policies from one location to another.
Examples of decentralisation (decentralised organisations)
There are many organisations around the world which have chosen decentralisation as their decision-making platform and organisational structure. For instance, Johnson & Johnson is famous as a decentralised company which has chosen local management to run its operations.
Famous British retailers such as Tesco, Asda, and Morrisons are also good examples of decentralisation. These companies have stores up and down the country, and abroad. Each store has a store manager who can make some decisions with regards to areas such as human resources, and sales promotions. The store manager is answerable to a regional or area manager.
Summary of the advantages and disadvantages of decentralisation
Establishing a decentralised structure requires a detailed planning. However, if it is done correctly, it offers several benefits. As discussed above, better decision making, higher employee engagement, improved customer experience, better use of limited resources, and more innovation are some of the advantages of decentralisation.
On the other hand, the disadvantages of decentralisation include ineffective collaboration, loss of efficiency, loss of control, and lack of consistency. To create a decentralised organisational structure, leaders should communicate their goals clearly and create a culture of autonomy and trust.
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Last update: 29 August 2022
Burns, S. (2022) Should you move to a decentralized organizational structure?, available at: https://www.forbes.com/sites/stephanieburns/2022/01/17/should-you-move-to-a-decentralized-organizational-structure/?sh=568c3c226cfd (accessed 28 August 2022)
Cambridge Dictionary (2022) Decentralisation, available at: https://dictionary.cambridge.org/dictionary/english/decentralize (accessed 27 August 2022)
Griffiths, G. (2022) Why decentralized innovation is critical, available at: https://www.forbes.com/sites/forbestechcouncil/2022/02/14/why-decentralized-innovation-is-critical/?sh=30eb5a277a52 (accessed 28 August 2022)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.