Decentralization – what does it mean in the organizational context?
When the power, responsibility, and activities of planning and related decision-making are distributed among the considered groups of the organization instead of a single authority, the organization is said to follow a decentralized structure. Decentralization refers to the spread of management and decision-making abilities among various departments of the organization, rather than staying maintaining dependence on a singular administrative center (Wegner, 2018).
Analyzing an article to understand the term
To understand the concept of decentralization and how it applies to the current business structures, a study from earlier sources of literature were chosen. The study chosen evaluates the performance of an organization as a result of decentralized decision making for investment in the organization’s IT infrastructure. During the study, the researchers concentrate on the paradoxical issue of IT productivity, especially in the regions external to the USA and Europe. In addition, the study was also designed to know more about the moderating role played by the decentralized structure in terms of making important management decisions. The Balanced Scorecard was used for the measurement of the organization’s performance during the study. The four metrics include innovation and learning, internal business processes, customer perspective, and its finances (Mohamad et. al., 2017). The explanations for the data obtained were made on the basis of the System Resource Theory. The researchers conduct an empirical analysis of the impacts that decentralized decision making has on firm performance. It was found to be moderate, with the major significance being prominent only from the perspective of the customers.
Further discussion on the topic
Whether an organization follows a centralized structure for decision-making or depends on the team authorities for the same, the prime aim is to align the operation processes with the goals and objectives of the organization. During the study, various benefits of a decentralized structure of decision making have been identified. Some of the prime ones include flexibility, increased proximity to the customers, increased quality and better timing of information, increased motivation among the management groups and the employees, and many more. However, there are certain demerits that are associated with it as well. Decentralization of power and decision-making responsibilities increases the creativity and motivation of the managers belonging to the lower tiers. At times, it can be negative as the employees had developed a sense of pseudo-ownership tend to improvise the production plans. It can not only hinder the processes but also incur additional investments for the organization. This can even impact the quality of products or services (Tommasi & Weinschelbaum, 2007).
Decentralization is not that great an option for the large organizations but can be one of the best structures of the small or mid-sized firms. It can also provide them with a significant competitive advantage in the market if the employees and lower-level managers can bring in some great innovations. Further, it makes the management of customer relationships easier for the organization as well as enhancing the chances of providing improved quality of products or services – especially on the basis of customized demands.