Factors affecting the degree of decentralization

Factors affecting the degree of decentralization

Nature of growth: if the enterprise has grown through internal expansion, it will continue to retain its original structure until it becomes unmanageable. On the other hand, if it has developed through amalgamation or absorption of different business enterprises, it will prefer of its functioning, because in that way it can reap the benefits of the expertise of the each individual unit.

Outlook of the top management: if the top management believes in uniformity, or if it seeks unified control, it will prefer strong centralized planroduning and control. On the other hand, if it has a liberal outlook and believes in the individual freedom, it will go in for decentralization and fewer controls.

Size and dispersal of operations: dividing a small enterprise into a number of divisions may be a costly affair. The best course for it would be to adopt a functional structure with its activities grouped under production marketing finance etc. but in a large enterprise with wide dispersal of operations creation of divisions and department for different activities and sub activities will add to its efficiency and profitability.

Extent of diversification: if the enterprise is dealing in a number of diverse products it cannot retain its efficiency through functional division of work because the production or sales department would not be able to give equal attention to each of the different products manufactured by it. The alternative in such a case would to go in for a separate department or division for each product.

Nature of functions: there should be greater decentralization of the functions for example production marketing and finance. That way the employees engaged in these activities would be encouraged to perform more efficiently. On the other hand in the case of staff functions like personnel recruitment research and development centralization may produce better results.

Availability of able managers: decentralization will be possible only when middle level managers of the enterprise are capable and experienced enough to make important decisions. Where such managers are not to be found centralization and not decentralization would be more beneficial.

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