Factors Determining The Degree Of Decentralization Of Authority
Managers cannot ordinarily be for or against decentralization or, centralization of authority. They may prefer to delegate authority, or they may like to make all the decisions.
Although the temperament of individual managers influences the extent of authority delegation, other factors also affect it. Most of them are beyond the control of individual managers. Managers may resist their influence, but no successful manager can ignore them.
1. Management Philosophy:
The character and philosophy of top executives have an important influence on the extent to which authority is decentralized. Sometimes top managers are despotic, tolerating no interference with the authority they jealously hoard. At other times, top managers keep authority not merely to gratify a desire for status or power but because they simply cannot give up the activities and authorities they enjoyed before they reached the top or before the business expanded from an owner-manager shop.
Retaining efficiency and discipline while allowing people to express themselves, to exercise initiative, and to have some voice in the affairs of the organization is the greatest problem large organizations have to solve.
2. Cost of Decisions:
As a general rile, the more costly the action to be decided on, the more probable it is that the decision will be made at the upper levels of management. Cost maybe reckoned directly in such intangibles as ‘the company’s reputation, its competitive position, or employee morale.
The fact that the cost of a mistake affects the decentralization is not necessarily based on the assumption that top managers make fewer mistakes than subordinates. They may make fewer mistakes, since they are probably better trained and in possession of more facts, but the controlling reason is the weight of responsibility. Delegating authority is not delegating responsibility; therefore, managers typically prefer not to delegate, authority for crucial decisions.
3. Desire for Uniformity of Policy:
Those who value consistency above all invariably favor centralized authority, since this is the easiest road to such a goal. They may wish to ensure that customers will be treated alike with respect to quality, price, credit, delivery and, service; that the same policies will be followed in dealing with suppliers; or those public relations policies will be standardized.
Uniform policy also has certain internal advantages. For example, standardized accounting, V statistics and financial records make it easier to compare relative efficiencies of departments and keep down costs. The administration of a, union contract is facilitated by uniform policy with respect to wages, promotions, vacations, dismissals and similar matters. Taxes and government regulation entail fewer worries and less change of error with uniform policies.
4. Size and character of the Organization:
The larger the organization, the more decisions to be made, and the more places in which they must be made the more difficult it is to coordinate them. These complexities of organization may require policy questions to be passed up the line and discussed not only with many managers at each level, Since horizontal agreement may be as necessary as vertical clearance.
The costs of large size may be reduced by organizing an enterprise into several units, such as product or territorial divisions. Efficiency may be increased by making the unit small enough for its top executives to be near the point where decisions are made.
This makes speedy decisions possible, keeps executives from spending time coordinating their decisions with many others, reduces the amount of paperwork, and improves the quality of decisions by reducing them to manageable proportions.
5. History and Culture of the Enterprise:
Whether authority will be decentralized frequently depends upon the way the business has been built.
Enterprises that result from mergers and consolidations are likely to show, at least at first, a definite tendency to retain decentralized authority, especially if the unit acquired is already operating profitably. To be sure, this tendency not to rock the boat may be politically inspired rather than based purely on managerial considerations. The claim to independence of the once-independent units is especially strong, and many years may have to pass before the chief executive of the consolidated company dares materially to reduce the degree of decentralization.
6. Desire for Independence:
Individuals and groups often desire a degree of independence from bosses who are far away. Individuals may become frustrated by delay in getting decisions, by long lines of communication, and by the great game of passing the buck. This frustration can lead to dangerous loss of good people, to jockeying by the office politician, and to an attitude of “not rocking the boat” by the less competent seeker of security.
7. Availability of Managers:
A real shortage of managers would limit decentralization of authority, since in order to delegate superiors must have qualified managers to whom to give authority.
There are also managers who believe that a firm should centralize authority because it will then need very few good managers. One difficulty is that the firm that so centralizes authority may not be able to train managers to take over the duties of the top executives and external sources must be relied upon to furnish necessary replacements.
8. Control Techniques:
Another factor affecting the degree of decentralization is the state of development of control techniques. A good manager at any level of the organization cannot delegate authority without having some way of knowing whether it will be used properly. Because some managers do not know how to control, they are unwilling to delegate authority. They may think that it takes more time to correct a mistake than to do the job themselves.
Improvement in statistical devices, accounting controls, the use of computers and other techniques have helped make possible the current trend toward considerable managerial decentralization. To decentralize is not to lose control, and to push decision making down into the organization is not to walk away from responsibility.
9. Decentralized Performance:
Decentralized performance refers to the situation where the managers of an enterprise are dispersed over a geographic area. The reason for decentralized performance is basically a technical matter depending upon such factors as the economics of division of labor, the opportunities for using machines, the nature of the work to be performed, and the location of raw materials, labor supply, and customers. This geographic decentralization influences the degree of decentralization of authority.
10. Business Dynamics: the Pace of Change:
The pace of change of an enterprise also affects the degree to which authority may be decentralized. If a business is growing fast and facing complex problems of expansion, its managers, particularly those responsible for top policy, may be forced to make a large share of the decisions. But strangely enough, this very dynamic condition may force these managers to delegate authority and take a calculated risk on the costs of error. Generally this dilemma is resolved in the direction of delegation and, in order to avoid delegation to untrained subordinates, close attention is given to rapid formation of policies and the acceleration of training in management.
11. Environmental Influences:
The factors determining the extent of decentralization that we have dealt with so far are largely factors within the enterprise. However, the economics of decentralization of performance and the character of change include elements well beyond the control of an enterprise’s managers. In addition, there are definite external forces affecting the extent of decentralization. Among the most important of these are governmental controls, national unionism and tax policies.
Government regulation of many facets of business policy makes decentralization difficult and sometimes impossible. In the same way, the rise of national unions in past decades has had a centralizing influence on business. The tax systems of the national, state, and the local governments have had a marked regulatory effect on business.