Degree of Decentralization indicates the extent to which an organization wants to decentralize depends upon the degree of decentralization.
For determining the Degree of Decentralization, a manager must consider eleven factors.
Managers cannot be ordinarily for or against decentralization of authority.
They may prefer to delegate authority, or they may like to make all decisions.
A well-known despot in a certain large enterprise, who would like to make all the decisions, finds that he cannot.
Even the autocrat in a smaller enterprise is often forced to delegate some authority.
Although the temperament of individual managers influences the extent of authority delegation, other factors also affect it.
Most of these are beyond the control of individual managers. They may resist their influence, but no successful manager can ignore them.
Many factors should be considered before determining the degree of decentralization of authority in the organization; some of them are described below:
1. The costliness of the Decision
Perhaps the overriding factor determining the extent of decentralization is, as in other aspects of policy, the criterion of costliness.
As a general rule, the more costly the action to be decided is, the more probable it is that the decision will be made at the upper levels of management.
The fact that the cost of a mistake affects decentralization is not necessarily based on the assumption that top managers make fewer mistakes than subordinates.
They may make fewer mistakes since they are probably better trained and in possession of more facts, but the controlling reason is the weight of responsibility.
As already discussed, delegating authority is not delegating responsibility. Therefore, managers typically prefer not to delegate authority for crucial decisions.
2. Uniformity of policy
Another, and somewhat related factor favoring the centralization of authority is the desire to obtain a uniform policy. Those who value consistency above all are invariably in favor of centralized authority since this is the easiest road to such a goal.
They may wish to ensure that customers will be treated alike with respect to quality, price, credit, delivery, and service; that the same policies will be followed in dealing with suppliers; or that public relations policies will be standardized.
Uniform policy also has certain internal advantages.
Standardized accounting, statistics, and financial records make it easier to compare relative efficiencies of departments and keep down costs.
The administration of a union contract is facilitated through a uniform policy with respect to wages, promotions, vacations, dismissals, and similar matters.
Taxes and government regulations entail fewer worries and chances for mistakes with uniform policies.
The larger the organization, the more decisions to be made and the more places in which they must be made, the more difficult it is to co-ordinate them.
These complexities of the organization may require policy questions to be passed up the line and discussed not only with many managers in the chain of command but also with many managers at each level, since horizontal agreement may be as necessary as vertical clearance.
Slow decisions—slow because of the number of specialists and managers who must be consulted—are costly. To minimize this cost, the authority should be decentralized wherever feasible.
Indeed, the large enterprise that prides itself on the right kind of decentralization recognizes the inevitable, although the extent and effectiveness of decentralization may differ widely among companies, depending largely upon the quality of their management.
The costs of a large size may be reduced by organizing an enterprise into a number of units. Considerable increases in efficiency are likely to result from making the unit small enough for its top executives to be near the point where decisions are made.
This makes possible speedy decisions, keeps executives from spending time coordinating their decisions with many others, reduces the amount of paper work, and improves the quality of decisions by reducing their magnitude to manageable proportions.
Exactly what this size is cannot be arbitrarily stated.
Some managers believe it to be 1000 persons, others believe it to be closer to 100 or 250, and some would hold that 2500 employees can be grouped into manageable divisions, each with considerable decentralized authority.
In any case, there is evidence that where the unit exceeds a certain size, the distance from top to bottom may impair the quality and speed of decision-making.
In the zeal to overcome the disadvantages of size by reducing the decision-making unit, certain shortcomings of decentralization should not be overlooked.
When authority is decentralized, a lack of policy uniformity and coordination may follow.
The branch, product division, or another self-sufficient unit may be as preoccupied with its objectives as to lose sight of those of the enterprise as a whole.
What headquarters executive is there that has not had the feeling that a division or a branch is at times “running away with the company?”
4. History of the enterprise
Whether or not authority will be frequently decentralized depends upon, the way the organization has been built or established.
On the other hand, enterprises that represent mergers and consolidations are likely to show, at least at first, a definite tendency to retain decentralized authority, especially if the unit acquired is operating profitably.
To be sure, this tendency not to rock the boat may be politically inspired rather than based on pure managerial considerations.
Certainly, the claim of independence of the once-independent units is especially strong, and a full managerial generation may have to pass before the chief executive of the consolidated company dares materially to reduce the degree of decentralization.
5. Management philosophy
The character of top executives and their philosophy have an important influence on the extent to which authority is decentralized.
Sometimes top managers are despotic, brooking no interference with the authority and information they jealously hoard.
At other times, top managers keep authority not merely to gratify a desire for status or power but because they simply cannot give up the activities and authorities they enjoyed before they reached the top or before the business expanded from an owner-manager shop.
Conversely, some people find decentralization a means to make the big business work.
In those cases, top managers may see decentralization as a way of organizational life that takes advantage of the innate desire of people to create, to be free, and to have status.
6. Desire for independence
It is a characteristic of individuals and of groups to desire a degree of independence.
Individuals may become frustrated by the delay in getting decisions, by long lines of communication, and by the great game of passing the buck.
7. Availability of managers
A real shortage of managerial manpower would limit the extent of decentralization of authority, as a delegation of decision-making assumes the availability of trained managers.
But too often the lamentable scarcity of good managers is used as an excuse for centralizing authority; executives who complain that they have no one to whom they can delegate authority often try to magnify their own value to the firm or confess to a failure to develop subordinates.
There are managers, also, who believe that a firm should centralize authority because it will then need very few good managers.
One difficulty is that the firm that so centralizes its authority may not be able to train managers to take over the duties of top executives, and external sources must be relied upon to furnish necessary replacements.
Thus the key to safe decentralization is adequate training of managers. By the same token, decentralization is perhaps the most important key to training.
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8. Control techniques
Another factor affecting the degree of decentralization is the state of development of control techniques.
One cannot expect a good manager at any level of the organization to delegate authority without having some way of knowing whether it will be used properly.
Coupled with a manager’s need to understand and use appropriate control techniques is the state of their development.
Improvements in statistical devices, accounting controls, and other techniques have helped make possible the current trend towards considerable managerial decentralization.
To decentralize is not to lose control, and to push decision-making down into the organization is not to walk away from responsibility.
9. Decentralized performance
This is basically a technical matter depending upon such factors as the economics of division of labor, the opportunities for using machines and the nature of the work to be performed.
10. The pace of change
The fast-moving character of an enterprise also affects the degree to which authority may be decentralized.
If a business is growing fast and facing the complex problems of expansion, its managers, particularly those responsible for top policy, may be forced to make a large share of the decision.
But, strangely enough, this very dynamic condition may force these managers to delegate authority and take a calculated risk on the costs of error.
Generally, this dilemma is resolved in the direction of the delegation, and, in order to avoid relegation to untrained subordinates, close attention is given to the rapid formation of policies and the acceleration of training in management.
11. Environmental influences
The factors determining the extent of decentralization discussed above have been largely internal to the enterprise, although the economics of decentralization of performance and the character of change include elements well beyond the control of an enterprise’s manager.
In addition, there are definite external forces affecting the extent of decentralization. Among the most important of these are governmental controls, national unionism, and tax policies.