Business Studies · Ch 5 — Organising
Importance
Importance
Decentralisation is More Than Delegation
Decentralisation is not just a mechanical transfer of authority down the hierarchy. It is a philosophy — a belief that people at lower levels are competent, capable, and resourceful. It assumes that subordinates can take responsibility for implementing their own decisions effectively. This philosophy recognises that decision-makers need autonomy. However, the top management must carefully decide which decisions to push down and which to retain at higher levels.
The textbook draws this distinction out fully in a comparative table (below) between delegation and decentralisation.
Importance of Decentralisation
The textbook lists six key points of importance.
1. Develops Initiative Among Subordinates
When lower-level managers are given the freedom to make their own decisions, they learn to rely on their own judgment. This builds self-reliance and confidence. They are constantly challenged and must develop solutions to problems they encounter. A decentralisation policy helps identify executives who have the potential to become dynamic leaders.
2. Develops Managerial Talent for the Future
Formal training is important, but equally important is the experience gained by handling assignments independently. Decentralisation gives subordinates a chance to prove their abilities. It creates a reservoir of qualified manpower who can be promoted to more challenging positions. It also helps identify those who may not succeed in assuming greater responsibility. Thus, decentralisation serves as both a means of management education and an opportunity for trained manpower to apply their talent in real-life situations.
3. Quick Decision Making
In a centralised organisation, every decision is taken at the top. Information must travel through many levels, and responses take time. This slows down decision making and makes it difficult for the enterprise to adapt to dynamic conditions.
In a decentralised organisation, decisions are taken at levels nearest to the points of action. There is no requirement for approval from many levels, so the process is much faster. There is also less chance of information getting distorted because it does not have to pass through long channels.
4. Relief to Top Management
Decentralisation reduces the amount of direct supervision a superior must exercise over subordinates. Subordinates are given freedom to act and decide within limits set by the superior. Personal supervision is often replaced by other forms of control, such as return on investment. This leaves top management with more time to devote to important policy decisions, rather than being occupied with both policy and operational decisions. In fact, decentralisation is greatest when the checking required on decisions taken by lower levels is least.
5. Facilitates Growth
Decentralisation gives greater autonomy to lower levels of management and to divisional or departmental heads. This allows each department to function in the manner best suited to it and fosters a sense of competition among departments. When each department does its best to outdo the others, productivity increases. The organisation generates more returns, which can be used for expansion.
6. Better Control
Decentralisation makes it possible to evaluate performance at each level. Departments can be individually held accountable for their results. The extent to which organisational objectives are achieved, and the contribution of each department, can be ascertained. Feedback from all levels helps analyse variances and improve operations. …
The McNeil name has been associated with the manufacturing and sale of pharmaceutical products since 1879, when Robert McNeil opened his first retail drug outlet in Pennsylvania. Growing as a producer of prescription pharmaceuticals, McNeil Laboratories, Inc. was incorporated in the U.S. in 1933, and became a member of the Johnson & Johnson family of companies in 1959. McNeil Consumer Healthcare began operations in Canada in an existing administrative Johnson & Johnson facility in Guelph, Ontario in 1980.
McNeil Consumer Healthcare (nonprescription pharmaceutical products) in Guelph, Ontario is member of the Johnson & Johnson family of companies in Canada.
An important difference between Johnson & Johnson and most other companies is the concept of decentralised management. Instead of operating as one large multi-billion dollar corporation, Johnson & Johnson is operated as 190 smaller companies, each focused on a specific medical or product franchise and/or geographic area, with each affiliate generating multiple options for growth. Through decentralisation we combine the advantages of being big with the agility and focus of smaller firms. Decentralisation enables each company to sty close to its customer, maintain short lines of communication with customers and employees, and accelerate the development of talent. The Johnson & Johnson – Merck Consumer Pharmaceuticals company also operates from our Woodlawn Road facility in Guelph.
| Basis | Delegation | Decentralisation |
|---|---|---|
| Nature | Delegation is a compulsory act because no individual can perform all tasks on his own. | Decentralisation is an optional policy decision. It is done at the discretion of the top management. |
| Freedom of action | More control by superiors hence less freedom to take own decisions. | Less control over executives hence greater freedom of action. |
| Status | It is a process followed to share tasks. | It is the result of the policy decision of the top management. |
| Scope | It has narrow scope as it is limited to superior and his immediate subordinate. | It has wide scope as it implies extension of delegation to the lowest level of management. |