The Advantages and Disadvantages of Decentralization

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The Advantages and Disadvantages of Decentralization

All business have an organizational structure that defines the way that the business is ran and who has the power over what. In centralized businesses, there is one section of the business that holds the majority of the power over decisions and processes. Decentralization is the break down of this style of organization, where the power is given to the small sectors of the business. Critics argue that giving too much power to people that don’t have the proper knowledge to make the decisions is a hindrance to the efficiency of the business as a whole, while others believe that it makes for a more sensible approach to problems. Let’s break down all of the good and bad things that can happen with decentralization.

The Advantages of Decentralization

1. More Input, Better Results
By allowing more people to be involved in the decision making process, you are opening up more input for solutions and innovative ideas. This is a wonderful benefit for companies because you are able to diversify the way that the business is ran in many ways.

2. Time for Bigger Things
The top people in the company much often have bigger fish to fry, rather than spend their time making smaller decisions. By distributing the responsibilities down the chain in the company, they are able to focus on more pertinent issues and projects.

3. Accelerated Decisions
With a decentralized organization structure, a business can make decisions and implement them much quicker than if they operated underneath a centralized structure. This is because, often times, the issues and decisions that must be handled involve lower areas of the business. If the power is placed directly into these lower areas hands, then the upper management doesn’t have to deal with the issue and a response can be reached much faster.

4. Spotting The Problem Is Easy
Many times, people can fly under the radar when they are not doing their job, simply because the problems that they cause will fall onto upper management. Decentralizing a business allows a company to pin point the weak links in their chain and, as a result, run the company more efficiently.

The Disadvantages of Decentralization

1. Inexperience Is A Problem
One of the biggest issues when dealing with a decentralized business is sheer inexperience. If employees are not trained and experienced in the types of things that they will be responsible for, then the business is greatly harmed. Rather than looking at things from a company wide perspective, they look at it from their own perspective.

2. The Big Picture is Blurred
When too much focus is put on the smaller sections of a business, the overall objective and goals of the business as a whole can be skewed. This is the main reason that many companies choose against decentralization.

3. Not A Good Choice For Some
If a company or business hasn’t completely established it’s way of doing things, their main objective, and are still building a name for themselves, then decentralization is typically not the best choice. Only businesses that are well established should consider this type of organization structure.

4. Promotes Unhealthy Competition
When you place power in lower management’s hands, they take it to heart. They feel as though the success of their sector falls directly on them, and in many ways it does. This causes these managers to begin competing with each other, and possibly doing things that are unethical in order to pull ahead and look better in front of upper management.

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Important Facts About Decentralization

  • Companies that are made up of more general workers, rather than specialized workers, benefit more from a centralized system.
  • One of the most successful examples of decentralization is the Johnson & Johnson company.
  • The CEO of Johnson & Johnson is possibly the biggest advocate of decentralization in business.