Decentralization refers to delegating authority throughout all levels of an organization. An organization is decentralized when decision-making authority is shared with lower management levels and decisions are made closest to operations. Decentralization benefits include reducing the burden on top management, facilitating growth, empowering managers, and encouraging employee development. While centralization concentrates authority at the top, decentralization delegates it downward in the hierarchy. Both are necessary, as complete centralization or decentralization would eliminate the need for management levels. Larger organizations tend toward more decentralized decision-making.

1. Organising
XII Business Studies
Decentralisation
Session : 10 Vikash Residential School

2. Prepared by Pratap Naik
Decentralisation
Learning Objectives
 Concept of Decentralisation
 When an organisation is said to Decentralised?
 Rational of Centralisation
 Rational of Decentralisation
 Centralisation or Decentralisation ?
 Comparative View: Delegation and Decentralisation

3. Prepared by Pratap Naik
Decentralisation
What is Decentralisation?
Decentralisation refers to delegation of authority throughout all the levels of the organisation.
 Decentralisation is an organisation policy where as delegation is an act of a manager.

4. Prepared by Pratap Naik
Decentralisation
What is Decentralisation?

5. Prepared by Pratap Naik
Decentralisation
When an organisation is said to Decentralised?
An organisation said to be decentralised, when
 Decision making authority is shared with lower levels of management.
 Authority is placed nearest to the points of action.
 Decision making authority is pushed down the chain of command.
 Decisions taken by the lower levels are numerous as well as important.

6. Prepared by Pratap Naik
Decentralisation
Rational of Centralisation
Centralisation is the systematic and consistent reservation of authority at central point within the
organisation. Many benefits associated with centralisation.
 Centralisation facilitates integration of efforts.
 Its makes communications and control easier in the organisation
 Its helps in reducing wastage of efforts by avoiding duplication
 There is uniformity in action throughout the organisation, means better coordination
 Provides opportunity for personal leadership.
Suitability
• Smaller organisations
• Organisations producing single or homogeneous products
• Organisations operating in limited geographical areas.

7. Prepared by Pratap Naik
Decentralisation
Rational of Decentralisation
When the organisation grow in size, the benefit of centralisation turn into limitations.
 Operational efficiency of the organisation affect seriously
 Decision making become quite complex, when faster decisions making required.
So the only alternative in such a situation is Decentralisation
Benefits
• It reduces burden of the top management
• It facilitates growth and diversification in the organisation
• It’s a philosophy to empower and motivate managers
• Encourage development of employees by providing them opportunities to take more responsibility
• It emphasises horizontal growth of the organisation there by reducing the level of management.
• More autonomy given to different units and pinpoints on the results to be achieved by each unit

8. Prepared by Pratap Naik
Decentralisation
Centralisation or Decentralisation ?
An organisation said to be
 Centralised when decision-making authority is retained by higher management levels.
 It is decentralised when such authority is delegated.

9. Prepared by Pratap Naik
Decentralisation
Centralisation or Decentralisation ?
An organisation said to be
 Centralised when decision-making authority is retained by higher management levels.
 It is decentralised when such authority is delegated.

10. Prepared by Pratap Naik
Decentralisation
Centralisation or Decentralisation ?
An organisation said to be
 Centralised when decision-making authority is retained by higher management levels.
 It is decentralised when such authority is delegated.
 Complete centralisation would obviate the need for a management hierarchy.
 Because all decision making functions lies at the top level of the management hierarchy.
 Complete decentralisation would obviate the need for higher managerial positions.
 Because all decision making functions delegated to the lower level of the hierarchy
Conclusion
 So an organisation can never be completely centralised or decentralised.
 Every organisation should be characterised by both centralisation and decentralisation.
 Large size organisations have tendency to move towards decentralised decision making.
 Because lower level has more knowledge about operational activities.

11. Prepared by Pratap Naik
Comparative View:
Delegation and Decentralisation
Basis Delegation Decentralisation
Nature
Delegation is a compulsory act because
no individual can perform all tasks on his
own.
Decentralisation is an optional policy decision.
It is done at the discretion of the top
management.
Freedom of
Action
More control by superiors hence less
freedom to take own decisions.
Less control over executives hence greater
freedom of action.
Status It is a process followed to share tasks.
It is the result of the policy decision of the top
management.
Scope
It has narrow scope as it is limited to
superior and his immediate subordinate.
It has wide scope as it implies extension of
delegation to the lowest level of management.
Purpose To lessen the burden of the manager.
To increase the role of the subordinates in the
organisation by giving them more autonomy.

12. Prepared by Pratap Naik
Decentralisation
 Concept of Decentralisation
 When an organisation is said to Decentralised?
 Rational of Centralisation
 Rational of Decentralisation
 Centralisation or Decentralisation ?
 Comparative View: Delegation and Decentralisation
Recap

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Session Complete Vikash Residential School
XII Business Studies