The main concept behind decentralization is the delegation of responsibility and the sharing of making decisions across various levels in an organization. This system is the opposite of centralization, where a central command structure uses a more autocratic style of management. Both types of management methods have their own sets of advantages and disadvantages, and here we will focus on the pros and cons associated with decentralization.
List of Pros of Decentralization
1. It can help the organization grow overall.
Since the top management has distributed the responsibilities and decision-making, they can focus less on day-to-day problem solving and more on pursuing the long-term vision for the company. Also, this allows more people in various levels to be involved in vital organizational processes, such as expansion, workforce hiring and development, and raising capital. As a result, these processes can be done more efficiently and more quickly, speeding up the growth potential of the company.
2. It encourages accountability and transparency.
Local managers and employees will be motivated to take more ownership of their work since they know they are carrying more responsibility. It also becomes easier to spot areas that require improvements and problems, so there is more transparency. In addition, making decisions becomes more of a participative effort where more people have the opportunity to give their two cents worth. As as a result, this provides fewer scapegoats when mistakes and bad decision are made.
3. It develops more leaders.
There are more opportunities to groom leaders and bring out the potential of employees in this type of set up.
4. It breeds innovation and flexibility.
There is less bureaucracy and bottlenecks to the open exchange of ideas, and as a result, more talented individuals can give their suggestions and be encouraged to innovate and come up with out-of-the-box solutions. Aside from that, those who are in specialized or local departments have a better understanding of the unique needs and challenges of their job and market, so they can provide appropriate solutions to quickly adapt to changes in their field or market.
List of Cons of Decentralization
1. It isn’t ideal for new organizations.
Start-ups are still finding their footing, so they need a strong and capable leadership to guide them towards the right path. If they pass on the decision-making and responsibility to a number of staff who are still learning the ropes and acquiring the required skills, the organization could end up with no direction and large losses.
2. It can breed unhealthy competition.
Local managers from different departments who have same-level ranks may clash, and because they know they have independent decision-making roles, resolving interdepartment conflicts may become more difficult. Aside from that, same-level leaders who are competing may refuse to coordinate and cooperate with each other.
3. It duplicates work.
Some organizations that follow a decentralized structure hire support groups (IT, HR etc.) for each of their specialized departments. Activities, processes, and outcomes may also be duplicated, and all these result to additional costs.
4. It makes the implementation of uniform organization policies more challenging.
Different manager can perceive company rules and standards differently, so implementing uniform and consistent policies may be more difficult.
The key to successfully managing any type of organization is to use a balance of the centralized and decentralized structures. It has to clearly define which decisions will remain under the top management and how much independence should be given to local departments.
Natalie Regoli, Esq. is the author of this post and the editor-in-chief of our blog. She received her B.A. in Economics from the University of Washington and her Masters in Law from The University of Texas School of Law. In addition to being a seasoned writer, Natalie has almost two decades of experience as a lawyer and banker. If you would like to reach out to contact Natalie, then go here to send her a message.