Decentralization involves spreading the decision-making throughout an organization instead of a few making all of the decisions. Decentralization is a matter of degree. At one end of the spectrum, a strongly decentralized organization has lower-level managers and employees making decisions. At the other end of the spectrum, in other strongly decentralized organizations, these managers have little freedom to make decisions. Most organizations fall somewhere between these two extremes, and there is a current trend toward more decentralization.
First Advantage of Decentralization
Top management is free to concentrate on higher-level problem-solving, company strategy, higher-level decision-making and coordinating activities. Decentralization allows top management to be free of the day-to-day "non-important" details of running a company. Top management can focus on important financial decisions, recruiting, training and maintaining a productive workforce, and positioning the company to be a force within its industry.
Second Advantage of Decentralization
Decentralization provides lower-level managers with crucial experience in making decisions. Without this experience, they would not be prepared to act decisively when they are promoted into higher-level positions. These so-called lower-level decisions could center on who in a certain department is on what project team or which workers work which shifts. These decisions are important but not as crucial as developing a criteria for the hiring and dismissal of employees.
First Disadvantage of Decentralization
Lower-level managers may make decisions without fully understanding the effects those decisions could have on the organization as a whole. While top-level managers have less information about local operations than lower-level managers, they normally have more information about the company's philosophy and should have a better grasp of company strategy. Lower-level managers are not always in a position to know the impact of their decisions as top-level managers do.
Second Disadvantage of Decentralization
Lower-level managers may have objectives and goals that differ from those of the organization. Some lower-level managers may be more interested in increasing the sizes of their departments than in increasing the profits of the company. Top-level managers must have their eyes on the dollar and its impact on the company. Many lower-level managers don't have to concern themselves with finances like their top-level brethren.