The terms Centralization and Decentralization describe the general degree to which delegation exists in the company.
Decentralizing an Organization:
The appropriate degree of decentralization for an organization depends on the unique situation of that organization.
Relevant Questions will be:
- What is the present size of the organization?
- Where are the Organization’s customers located?
- How homogeneous is the organization’s product line?
- Where are the Organizational Suppliers?
- Is there a need for quick decisions in the Organization?
- Is creativity a desirable feature of the Organization?
The larger the organization, the more the chance that decentralization will be advantageous. Delegation is an effective means for helping managers manage their increasing workload in big organizations.
But in some cases, the Organization may be too large and decentralized.
If the proportionate manpower costs are very high, then that organization may actually benefited by centralization of some of the aspects of the organization.
The more physically separated the organization’s customers are, the more viable a significant amount of decentralization is. This is less valid in the ecommerce business but most other cases, it makes complete sense.
HOMOGENEOUS PRODUCT LINE:
Generally, as the product line becomes more heterogeneous, or diversified, the appropriateness of decentralization increases.
Decentralization of some functions becomes a requirement, in case of high geographic diversity in the suppliers.
QUICK DECISION MAKING:
If speedy decision making is essential, then decentralization of the relevant functions can be critical.
Decentralization generally fosters creativity.