Effective Decentralization

Like delegation, decentralization has a technique by which it can be effectively achieved. When an organization decides in favor of votes for decentralization, it has to take some concrete steps to make it more effective. Effective decentralization requires a balance of the necessary centralization of planning, organization, motivation, coordination, and control.

1. Establish Appropriate Centralization

If decentralized management is to flourish, 1t IS necessary to provide for a centralized authority which will act as a nerve centre of the enterprise. Here plans would be formulated, appropriate organization structure would be decided and coordination and control mechanisms would be provided. Within such a broad administrative framework individual operating components of the organization would be established as profit centres. The centrai authority ensures close coordination between various operating units and secures maximum total performance. Without the strong cement of centralized planning, organization, coordination and control the diversified company is in danger of coming apart at the seams’. 

2. Development of Managers

Effective decentralization demands a large number of highly competent managers who are capable of exploiting their mental faculties fully and independently in the service of the organization. They must be able to look ahead, to plan for themselves and to run a business. In order to develop managers, the organization should take certain steps: (i) Managers do not develop overnight Instead; they develop through the painful process of trial and error. Every manager should be allowed to take decisions independently and commit mistakes initially. One must develop management ability by managing; one must learn to make decisions by making decisions only. (ii) Senior executives must enthusiastically accept the principle of delegation and know the technique of doing it.

3. Provide for Communication and Coordination

The inherent dangers in decentralized management must be recognized by all managers working in an independent fashion. Decentralization tends to create rivalry and conflict among operating divisions. Departmental managers constantly jockey for power and prestige, they compete for scarce resources and in order to show performance they may be working at breakneck speed at the cost of other departments. The remote control from headquarters may prove to be ineffective as the enterprise grows in size and complexity. To prevent the disintegrating tendencies arising from out of a tunnel vision on the part of each divisional manager, it is necessary to provide for communication and coordination among operating divisions at regular intervals. Coordinating executives and committees may be appointed to meet this end. The dangers of too much fragmentation can be avoided by laying special emphasis on interdepartmental coordination, mutual help and cooperation. 

4. Establish Adequate Controls

Profit centre decentralization demands an appropriate control system that will distribute the resources, assign costs fairly and indisputably to the operations unit that utilizes or incurs them. Budgets can be prepared and standards devised to see whether various units are going in the desired direction. To ensure accountability managers at all levels should be allowed to participate in budget formulation. This would not only make managers feel responsibility but also ensure an objective standard to measure performance and reward the same suitably.

Decentralization is not a panacea. It cannot be plugged into any situation and be expected to work well. It is quite possible that interdepartmental (or divisional) tensions and rivalries can trouble the top management with an unmanageable number of problems.

Decentralization, no doubt is highly beneficial but at the same time it is complex and challenging. Effective decentralization requires a contingency perspective which examines particular functions and departments. in a dispassionate manner. Much depends on how the philosophy of decentralization is being translated into practice. As a matter of fact, a programme of decentralization should not be initiated until the following points have been properly settled:

Top management is willing to share authority for decision-making with others.

Middle management is capable and is willing to accept new responsibility.

Policies are adequate to guide decision-making but not unduly restrictive.

Control system exists to evaluate effectiveness of middle management decisions.

Existing structure must lend itself to, or can be modified to, facilitate decentralized operations.