Question

Explain the five reasons why a firm should decentralize its decision making?

Answer 1

Decentralization is the process by which authority of decision making is transferred from top management (i.e centre) to concerned departments or persons in the organization.

1. Reduces burden of top management: When decision making is centralised, top manager is burdened with lot of work and the decisions made in such a situation might prove wrong for the organization. When decision making is decentralized, burden of top management reduces, which not only increases the quality of the decision but also makes top management focus on more important issues.

2. Flexibility: The business environment consists of various factors which could adversely affect the organization. Quick decisions is required to be made. Centralization in such a situation can prove adverse because departments in the organization wait for the decision of the top management when it's time to take immediate action. Decentralization will ensure more flexibility as the decision making delegated, so the concern department can take timely decision and implement it, which in turn will prevent organization from adverse effects.

3. Quality decision making: Top management might not have all the knowledge and expertise in every field related to the organization, be it sales, production, marketing, investment decisions and so on. Decision made by him are not the quality decision which could have been made if an expert does that. If Decentralization is done, decision making will be transferred in the hands of the concerned person who has more expertise in it. Decision made by him will be a quality decision and will be beneficial for the organization.

4. Boosts employee's morale: In the centralized decision making, employees are given orders and they have to follow it even if they are unwilling to do it or they know it's not right for the organization. Their morale goes down which in turn reduces productivity. If decision making is decentralized, employees can take relevant decision on their own, which increases their morale and in turn increases productivity.

5. Helps in expansion of business: If the organization is expanding its line of products, or its unit to another geographical area, centralised decision making will prove wrong in such a situation because top management might not be aware of the prevailing situation in that geographical area. Decentralization will ensure that the decision is made by the person authorised and who has the knowledge about the current geographical situation. This will ensure good decision making and action required for the particular geographical area.