question_answer

A company Ltd manufacturing cosmetics, which enjoyed a pre-eminent position in business, has grown in size. Its business was very good till 1991. But after that, new liberalised environment has seen entry of many MNC's in the sector. With the result, the market share of X Ltd has declined. The company followed a Very centralised business model with directors and divisional heads making even minor decisions. Before 1991, this business model had served the company very well as consumers has no choice. But now, the company is under pressure to reform and decentralise.

(i) What do you understand by decentralisation? Can an organisation in general, be fully centralised or fully decentralised?

(ii) Explain any three advantages of decentralisation.

Answer:

(i) Decentralisation refers to systematic delegation of authority at all levels of management and in all departments of organisation to take decision. While complete centralisation implies concentration of authority in a few hands, complete decentralisation implies greater autonomy to the lower levels of management. Therefore, an organization cannot be completely centralised or decentralised. As an organisation grows in size, there is a tendency to move towards decentralised organisation. At the same time, decisions need to be centralised in priority areas and Key Result Areas (KRAs). (ii) Advantages of decentralisation are given below: [a] Develops Initiative amongst Subordinate Decentralisation helps to promote self-reliance and confidence amongst the subordinates. This is because when lower level managers are given freedom to take their own decisions, they learn to depend on their own judgement. [b] Quick Decision-making In a decentralised organisation, since the decision-making power is entrusted to all the managers who perform the activities, there is no delay in decision-making am they are taken quickly. [c] Facilitates Growth Decentralisation provides greater autonomy to the lower levels of management as well as divisional or departmental heads. This increases the productivity levels and the organisation is able to generate more profits, which can be used for growth and expansion Purposes.