Ch 16 Central is at Ion n Decentralisation

8/2/2019 Ch 16 Central is at Ion n Decentralisation

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Chapter

CentralisationandDecentralisati

on

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on

Decentralisation actually refers to the degree to which authority is

delegated to lower levels. In decentralisation, a great deal of authority is

delegated and more decisions are made at lower levels. Centralisation

is the opposite action. Authority and responsibility are tightly held by

upper levels of the organisation and are not delegated.


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Centralisation

In centralisation, little delegation of authority is the rule; power anddiscretion are concentrated at the top levels. Control and decision

making reside at the top levels of the management. The more highly

centralised the organisation, the more control and decision making

reside at the top. However, absolute centralisation is untenable because

it would mean that subordinates have no duties, power, or authority.Centralisation may be essential in case of small organisations to survive

in a highly competitive world.


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Centralisation-Assets

Facilitates effective utilisation of services of the most talentedleaders in the organisation.

Centralised authority keeps all parts of the organisation movingtogether harmoniously towards a common goal. Acts as a unifyingforce and integrates the total operations of the enterprise. A strongcoordinated top management team is developed.

Assures uniformity of standards and policies among organisationalunits. A high degree of uniformity of purpose in planning, andcontrol is provided. The danger of actions drifting and getting offcourse is minimised.

Best arrangement to tackle emergencies; the resources andinformation can be mobilised quickly and effectively.

Duplication of functions is maintained at a minimum.

Unburdens top-management people of frustrating routine work andfrees them for strategic and important activities.

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Decisions are made closer to the scene of action; ensures more

flexible and faster decisions in tune with the rapidly changingenvironmental demands.

Provides a fertile training ground for the development of

'generalists' thereby facilitating succession into positions of

general managers smoothly.

Facilitates product growth and diversification. Proportionate and

balanced emphasis can be given to all products.

It has a tonic effect on the psychology of subordinates. It permits

judgment and initiative on the part of subordinates paving the wayfor a positive, behavioural climate.


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Centralisation-Liabilities

As organisations grow, decision-making and communicationprocesses are forced to travel at a snail's pace.

Centralised power and authority may be abused, and used as a'whip'.

Inhibits the development of lower-level people.

The fortunes of the organisation depend precariously on the healthand vitality of top-management people.

Uneconomical commitment of funds due to duplicating functions andservices.

Capable individuals to look after divisionalised organisations arerarely available.

Freedom of action leads to diversity of decisions. The remote controlfrom headquarters may prove to be ineffective as enterprise grows.

Too much fragmentation poses problems of lack of uniformity ofstandards, coordination, etc.


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DecentralisationDecentralisation is the systematic effort to delegate to the lowest levelsall authority except that which can be exercised at central points. It is thepushing down of authority and power of decision-making to the lowerlevels of the organisation. The centres of decision-making are dispersedthroughout the organisation. However, the essence of decentralisation isthe transference of authority from a higher level to a lower level.

Decentralisation, in recent years, has come to be accepted as a goldencalf of management philosophy. It has come to be associated as afundamental principle of democratic management where each individualis respected for his inherent worth and constitution. Absolutecentralisation (where there is no room for subordinates) or absolutedecentralisation (where there is no coordinated, organised activity) is

fictitious in practice, it is a matter of degree along a continuum. Generallyspeaking, decentralisation is said to be greater:

when more decisions are made at lower levels.

when more important decisions are made at lower levels.

when more functions are affected by decisions made at lower levels.

when the checking on the decisions made at lower levels is minimal.


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Types of Decentralisation

Three types of decentralisation are:

Profit centres (called as a responsibility centre)

Cost/Expense Centres

Investment Centres


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Advantages of Decentralisation

The advantages of decentralisation are legendary and welldocumented in management literature thus:

1. Decentralisation reduces the workload of an overburdenedexecutive.

2. It brings the decision-making process closer to the scene of the

action.3. Decentralisation facilitates product diversification.

4. Decentralisation gives individuals an opportunity to learn by doing.

5. It often results in effective controls and performancemeasurements.

6. A final advantage of a decentralised management is associatedwith the profitcentre principle.


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Disadvantages of DecentralisationThere is no guarantee that decentralisation will always yield fruitful resultsand there is little empirical evidence to support the positive side ofdecentralisation. The trend toward decentralisation seems to haveslackened for several possible reasons.

Conflict

Cost

Some disadvantages of decentralisation relate to the profit-centreconcept

Decentralisation can be extremely beneficial. But, it can also bedangerous unless it is carefully constructed and constantly monitored forthe good of the company as a whole. Excessive decentralisation can do

extreme damage to an organisation:

Production schedules being drawn up without consulting a salesforecast.

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Two representativesone from the region and one from the productdivisiontrying to sell the same product to the same customer whiletelling him conflicting facts about it.

Sales drives aimed at a volume of orders which the factories cannotactually meet.

Good young managers bottled up in inadequate jobs because their

bosses will not release them for promotion in other departments andhave no vacancies in their own.

The general state of affairs where the planning department is anexpensive joke and the firm has as many policies as managers.


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Contingency Factors in DecentralisingThe appropriate organisational mix of centralisation and decentralisation

is affected by the following situational variables:

Purpose and goals of an organisation

Knowledge and experience of executive

Organisation size Geographical dispersion

Technical complexity of tasks

The time frame of decisions

The importance of the decision

Views of subordinates

Planning and control procedures

Environmental factors


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Effective DecentralisationEffective decentralisation requires a balance of the necessary

centralisation of planning, organisation, motivation, coordination, and

control.


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Delegation vs. Decentralisation Delegation simply means pushing authority down to subordinates.

Decentralisation involves (a) determining what authority to pushdown to subordinates, (b) developing policies and rules to guidesubordinates who have this authority delegated to them, and (c)implementing selective but adequate controls for monitoringperformance.

Delegation is concerned with sharing of either managerial work oroperating work between a manager and a subordinate.Decentralisation in a sharp contrast, is concerned exclusively withsharing of managerial work, i.e. the power of decision-makingbetween two managers.

Decentralisation is a managerial philosophy; it embraces all areas ofmanagement. Viewed in this angle, decentralisation impliessystematic and company-wide delegation on the part of all managerswho must accept and practise delegation as a common philosophyor a way of company life.

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Delegation can occur on an individual basis under which, somemanagers make wide delegation and others effect very littledelegation. Delegation can take place on a limited scale even in acentralised organisation. In other words, it can be used by aparticular executive in a specific area of the business without beinga party to the decentralisation programme for the organisation as awhole.

Decentralisation represents a shrewd balance between delegationof authority and centralised control. Finding the right balancebetween autonomy and control is the crucial issue in the art ofdecentralising.

Delegation is the process and decentralisation is the result.

Delegation is the key to organisation. Organising without delegationhas no meaning. Delegation is thus essential for group efforts.Decentralisation is optional. Further, in delegation, control isexercised at the top and in decentralisation control is transferred tothe decentralised unit.

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Ch 16 Central is at Ion n Decentralisation