There are different forms of organisation by which firms assign roles and responsibilities to their employees. But broadly speaking there are two main kinds of organisation.

A company where the top management takes all the decisions, including those pertaining to daily operations, is a centralised system of organisation. Whereas a management system where the decision-making is distributed among all the levels of management is a decentralised system of organisation. So the concept of decentralisation means delegating responsibility to the employees. Companies may choose one or the other form of organisation or combine both systems.

Concept of Decentralisation

According to the concept of decentralisation, the company’s decision-making authority is delegated among all levels of the organisation. It describes how the decision-making authority is distributed in a firm based on the hierarchy established by the company.

The importance of decentralisation lies in the fact that it places the decision-making authority closest to where the decisions need to be taken. A firm is said to be greatly centralised when the lower levels of the firm also have the power to make decisions. 

Definition

The concept of decentralisation has been defined in various ways. Some of the definitions are as follows:

  • Allen: “Decentralisation refers to the systematic effort to delegate to the lowest levels all authority except that which can only be exercised at the central points.”
  • Strong: “Decentralisation means the division of a group of functions and activities into relatively autonomous units with overall authority and responsibility for their operation delegated to a head of each unit.”
  • McFarland: “Decentralisation is a situation in which ultimate authority to command and ultimate responsibility for results is localised as far down in the organisation as efficient management of the organisation permits.”

Characteristics

There are three questions that help determine the degree of decentralisation in a company:

  1. What kind of authority is being given to the middle and lower levels of management?
  2. How far down is the decision-making authority being distributed?
  3. How consistently is it being distributed?

 

An important feature of decentralisation is the freedom of exercising authority by all the levels of management.

Following are some important characteristics of decentralisation:

  • Decentralisation is more than just delegation. Proper decentralisation means real authority is given to different points in an organisation. Delegation is the mere transfer of the task. Decentralisation makes it possible for an individual to use discretion and make decisions independently.
  • An important characteristic of successful decentralisation is the competence and efficiency of the workers.
  • The authority to make decisions is accompanied by the responsibility to ensure proper results.
  • Coordination among all the levels of authority is of vital importance in any decentralised system.

Advantages

The importance of decentralisation lies in its various advantages. Some of these advantages are as follows:

  • Employee development: When authority is distributed, and individuals are responsible for making decisions about their everyday tasks, their skills and understanding of their work increase.
  • Takes the load off top management: When all the levels of management have the power to make decisions related to their tasks, the apex management members are freed from the smaller tasks required for the daily operations.
  • Accurate monitoring of functioning: Tracing problems the business faces becomes easier when each level is responsible for its work.
  • Quick decision-making: Since the authority to make decisions is closest to the point at which the decision needs to be taken the decision-making process is smoother.

Conclusion

The concept of decentralisation dictates that authority needs to be given to all levels. It takes more than just the transfer of instructions or delegation of tasks for a firm to function efficiently in such a system of organisation. It is an efficient way of organising a firm because it helps make the decision-making process more efficient while developing the human resources simultaneously.