The work of an organizational structure is to centralize authority. Basically, the authority is handed over to the chief executive officer (CEO), president or board of directors. They are considered to have the power of leadership. Nowadays, most organizations work in a decentralized manner. In decentralization, the managerial work is divided and given to the middle and low-level managers. They are given decision-making power. Employees in the organization may be more confident due to this idea of decentralized organization.
For example, suppose in a centralized organization a middle level manager wants to make a deal that will enhance the development of their organization. To make this deal, the manager should make a request to the higher authority and wait for approval. But in a decentralized organization the manager is free to make the deal. Even though decentralization has various advantages, it also has some disadvantages such as lack of uniform policies, conflicts and financial burden.
Uniform policy cannot be followed in a decentralized organization. Since middle and low-level managers are given authority, they work according to the talent they possess.
Each manager would formulate their own principles and work under it. Due to this widespread authority, the chance of maintaining uniform policy becomes impossible.
The authority given to low and middle level managers may be misused. They can use it for their personal purposes rather than using it for development of the organization.
This may also result in a lack of dignity, which is an important character in the corporate world.
In order to increase the performance and output of an organization, the higher authorities may pressure departmental managers. In this situation, the managers would work to achieve their departmental goals rather than corporate goals. This may lead to interdepartmental conflicts.
The conflict may also arise in various situations. While choosing a new profit plan for the development of the organization, conflict may occur among departmental managers.
If the organization is disintegrated into too many parts, then the authority will also be widely spread. This causes a lack of coordination in the organization.
In a decentralized organization, higher authorities in a distance area cannot control the activities of the organization in an effective manner.
Adaptability becomes very difficult in a decentralized organization. Due to the changing environment, the various departments perform differently. This affects the growth of an organization.
There are many risks associated in a decentralized organization such as choosing the right people as managers for each department, financial burden and handling emergency situations.
Since authority in a decentralized organization is delegated to low and middle level managers, the managers assigned in each department should be skilled and trained.
If they are not capable of handling situations, then it may result in losses and it may raise financial risk.
Assigning a trained manager in each department requires more capital. This is not likely possible in a startup company or in a small organization, as these cannot afford more capital.
In order to assign trained managers, training sessions need to be conducted, consuming more time and money.
If each department wants to be self-sufficient, then each department should have a separate marketing team, personnel and purchasing team. This leads to increases in the number of staffs, which results in financial imbalance in the organization.
In a decentralized organization, the low and middle level organizations are only delegated to take decisions on a day-to-day basis. In case of emergency situations, they cannot make any decisions. They should wait for the higher authority to solve the problem.
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