Business Management, Ethics and Entrepreneurship

What Factors are Involved in Determining the Degree of Decentralization?

To which extent authority can be delegated largely depends on the attitude and temperament of individual managers, yet many other factors also affect it. Some such factors of overwhelming preponderance may be explained as follows:

(i) Importance and Significance of the Decision: One of the important factors determining the degree of decentralization of authority is the costliness of the decision. Normally, decisions that are costly in terms of money value involved or in terms of factors like goodwill and image of the establishment, employee morale, or motivation tend to be centralized at the upper levels of management. In other words, it is very rare that authority for crucial decisions is delegated. Of course, the practice is not based on the assumption that people at the higher level in the managerial hierarchy do not make mistakes. It is believed, however, that better fewer mistakes since they are trained and more experienced, and in possession of adequate information necessary to arrive at a decision. In fact, it is observed from the mode of managerial behavior that the determining factor in the centralization of authority with regard to specific areas or areas is the weight of responsibility since authority delegation does not implicate responsibility delegation.

(ii) Size of the Enterprise: Another pertinent factor determining decentralization is largely the size of the organization. The larger the firm, the more decisions are to be taken. Hence a number of departments and many levels are included. There is no denying the fact that it becomes too difficult to coordinate all of them. Moreover, a number of executives and specialists need to be consulted in such big establishments. In essence, decisions are often delayed, though delayed decisions cost more. Diseconomies of large size may be greatly reduced by organizing the enterprise into a number of decentralized units resulting in greater economy and efficiency. Of course, the exactness of the size, till now, is a controversial matter. Nothing in particular or categorically can be prescribed. But it is to be appreciated in all circumstances that the size of each individual unit should be so determined that departments or units are easily manageable with authority considerably decentralized.

(iii) Management Attitude and Philosophy: Decentralisation largely depends upon the character of top executives and their attitude. It may be noted that the outlook and attitude of top management is, undoubtedly, a significant determinant of the extent and mode of authority dispersal. It is certain that an executive with a traditional rigid outlook hardly contemplates delegating substantial authority. On the other hand, people with rational managerial temperament believe and want to rely upon the participative approach of doing the work and are anxious to take the maximum opportunity of individual initiative in the organization, opt for decentralization.

(iv) Control Techniques: Another related factor determining the degree of decentralization is the magnitude of the desire to obtain a uniform policy with regard to such vital factors as the price of a product, service, delivery, credit, etc., which can best be practiced by a centralized authority. And there is no denying the fact that such a standing belief deters them from delegating authority to others – even to the executives of regional offices. Of course, the internal advantage of uniform policy cannot be undermined altogether. But, in the same event, costs involved to centralize decisions must also be taken into account. It is further to be appreciated that centralization is likely to arrest individual initiative and dampen the future growth of managerial personnel from within the organization.

(v) Availability of Capable Executives: Nevertheless, the availability of capable executives substantially determines the nature and extent of dispersal of authority. It is not uncommon that top executives willing to delegate authority find themselves handicapped for want of capable and qualified subordinates. Obviously, the key to safe decentralization is adequate training of subordinates by making them able to shoulder higher responsibility effectively. And perhaps it would be interesting to note that decentralization provides possible opportunities to impart the training required.

(vi) Environment Influences: So far the determinants of the extent of decentralization that have been analyzed belong to the interior of the firm. But certain external forces are also significant in determining the mode of decentralizing authority. There should not be any controversy over the fact that forces, like government control, national unions, the fiscal policy of the government, and government purchases, also, to a considerable length, determine and mold the extent and nature of decentralization of any organization.

In fact, these forces on many occasions deter the management of an enterprise to delegate authority down the echelon since many aspects of the functioning are virtually controlled by such external forces. Say, for example, when raw material is subject to government allocation, the extent of authority that can be given to purchasing and factory managers is really a point of argument. Likewise, if the pricing of any product is subject to regulation, hardly any authority could be given to the sales manager to exercise and assert.

About the author

Shreya Kushwaha

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