What are the advantages and disadvantages of decentralization?


Quick Answer

Decentralization is advantageous in that it allows a company to simplify expansion, delegate and divide responsibilities among departments, and improve diversity and product emphasis. Drawbacks of decentralization include a lack of uniformity in company policies, higher finance costs, internal conflicts and ownership's loss of authority.

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Full Answer

Decentralization within a company may be necessary when the owner needs to delegate some responsibility and decision-making authority to management personnel within the company. It may also become necessary in order to further a company's expansion or relieve its owner of a portion of the operational burden.

When a company is decentralized, it must hire specialized, qualified management for each individual department. This encourages productivity and executive development, but it may cause conflict within the company. It is easier for a decentralized company to diversify its products and improve services, such as shipping and customer service. However, it runs the risk of products and service deterioration as departmentalized management may not adhere to the company's established policies and procedures. Notwithstanding, decentralization does improve ownership's ability to focus on and resolve problems that may occur within the company, though they have less control over the occurrence of internal issues. Coordination is also a significant challenge within a decentralized company.

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