Description
Importance of Decentralization!
DECENTRALIZATION
MEANING:
Decentralization is diffusion of authority. It is a process by which specific responsibility is assigned to subordinates. Such a responsibility, when assigned to subordinates, is always followed by sufficient authority which also is given to the executive and other subordinates at lower levels. Decentralization, therefore, refers to assigning of responsibility and delegation of authority to various executives and other subordinates at lower levels in an effort to make the lower level more responsible and accountant able to the job entrusted to them.
DEFINITION:
Advantages of Decentralization:
The following are the advantages of decentralized setup of an organization:
?
?
?
Distribution of Executive’s Burden: Certainly the decentralized setup offers an opportunity to the executive to share his burden with others at lower level in the process making himself free for more urgent and important work requiring his undivided attention. This smooth-ens the work gives speed to the work, creates cordial atmosphere and better understanding and develops team spirit among all those who are working for the organization. Saving in Time: The work originating at a particular level in an organization may be accomplished at the same level, if it falls within the limit of the authority of that level. Such work generally originates and accomplished. This naturally saves time and gives a speed to the work. Enthusiastic and Energetic Subordinates: The subordinate, who is asked to shoulder the responsibility with sufficient authority feels enthusiastic and functions with extra zeal and energy. In fact he feels elevated, his ego is satisfied and he is filled with energy simply because he is to work on his own. An involvement is there. A sense of being a part of the organization
?
?
?
?
?
and a sense of accomplishment gives the subordinate vigor and vision. He works hard and accomplishes the task. This helps the organization in achieving the target satisfactorily. Greater Efficiency and output: Since the responsibility is given with authority and power everyone entrusted with such a responsibility takes care of fulfilling his responsibility with utmost care. This care and caution and enthusiastic approach to the work ensure increased efficiency and output. Expansion Facility: It offers greater scope for expansion of business as decentralized setup makes free the top managing people from routine and other matters and thus time available to them may be utilized by them for new thinking and new ideas. This gives an opportunity to plane expansion and achieve the same without much of difficulty. Expansion of modern business houses is the direct outcome of decentralized system of organization. Secrecy maintained. Comparatively here in such a sets up secrecy can easily and effectively be maintained without much cost and unnecessary trouble. Utilization of available talents. The talents available can be best utilized in decentralized setup as everyone is given an opportunity to prove his worth. Such an opportunity is usually not available in centralized setup. This also ensures loyalty and develops team spirit as well. Capability is rewarded here and one is given a chance to improve, if someone, somewhere, lacks due to one reason or the other. Quick Decisions. For decision one is not required to reach on the top. Just one can take decision whenever one has to take without wasting time and energy in rituals and maintaining the channel. Unnecessary wastage of time energy and money is avoided giving overall better performance
Types / Forms of Decentralization:
Types of decentralization include political, administrative, fiscal, and market decentralization. Drawing distinctions between these various concepts is useful for highlighting the many dimensions to successful decentralization and the need for coordination among them. Nevertheless, there is clearly overlap in defining any of these terms and the precise definitions are not as important as the need for a comprehensive approach. Political, administrative, fiscal and market decentralization can also appear in different forms and combinations across countries, within countries and even within sectors. ? Political Decentralization: Political decentralization aims to give citizens or their elected representatives more power in public decisionmaking. It is often associated with pluralistic politics and representative government, but it can also support democratization by giving citizens, or their representatives, more influence in the formulation and implementation of policies. Advocates of political decentralization assume that decisions made with greater participation will be better informed and more relevant to diverse interests in society than those made only by national political authorities. The concept implies that the selection of representatives from local electoral jurisdictions allows citizens to know better their political
representatives and allows elected officials to know better the needs and desires of their constituents. Political decentralization often requires constitutional or statutory reforms, the development of pluralistic political parties, the strengthening of legislatures, creation of local political units, and the encouragement of effective public interest groups. ? Administrative Decentralization: Administrative decentralization seeks to redistribute authority, responsibility and financial resources for providing public services among different levels of government. It is the transfer of responsibility for the planning, financing and management of certain public functions from the central government and its agencies to field units of government agencies, subordinate units or levels of government, semi-autonomous public authorities or corporations, or areawide, regional or functional authorities. The three major forms of administrative decentralization -deconcentration, delegation, and devolution -- each have different characteristics. Deconcentration: Deconcentration--which is often considered to be the weakest form of decentralization and is used most frequently in unitary states-- redistributes decision making authority and financial and management responsibilities among different levels of the central government. It can merely shift responsibilities from central government officials in the capital city to those working in regions, provinces or districts, or it can create strong field administration or local administrative capacity under the supervision of central government ministries. Delegation: Delegation is a more extensive form of decentralization. Through delegation central governments transfer responsibility for decision-making and administration of public functions to semiautonomous organizations not wholly controlled by the central government, but ultimately accountable to it. Governments delegate responsibilities when they create public enterprises or corporations, housing authorities, transportation authorities, special service districts, semi-autonomous school districts, regional development corporations, or special project implementation units. Usually these organizations have a great deal of
discretion in decision-making. They may be exempt from constraints on regular civil service personnel and may be able to charge users directly for services. Devolution: A third type of administrative decentralization is devolution. When governments devolve functions, they transfer authority for decision-making, finance, and management to quasi-autonomous units of local government with corporate status. Devolution usually transfers responsibilities for services to municipalities that elect their own mayors and councils, raise their own revenues, and have independent authority to make investment decisions. In a devolved system, local governments have clear and legally recognized geographical boundaries over which they exercise authority and within which they perform public functions. It is this type of administrative decentralization that underlies most political decentralization. ? Fiscal Decentralization: Financial responsibility is a core component of decentralization. If local governments and private organizations are to carry out decentralized functions effectively, they must have an adequate level of revenues –either raised locally or transferred from the central government– as well as the authority to make decisions about expenditures. Fiscal decentralization can take many forms, including a) self-financing or cost recovery through user charges, b) co-financing or co-production arrangements through which the users participate in providing services and infrastructure through monetary or labor contributions; c) expansion of local revenues through property or sales taxes, or indirect charges; d) intergovernmental transfers that shift general revenues from taxes collected by the central government to local governments for general or specific uses; and e) authorization of municipal borrowing and the mobilization of either national or local government resources through loan guarantees. In many developing countries local governments or administrative units possess the legal authority to impose taxes, but the tax base is so weak and the dependence on central government subsidies so ingrained that no attempt is made to exercise that authority. ? Market Decentralization: The most complete forms of decentralization from a government's perspective are privatization and deregulation because
they shift responsibility for functions from the public to the private sector. Privatization and deregulation are usually, but not always, accompanied by economic liberalization and market development policies. They allow functions that had been primarily or exclusively the responsibility of government to be carried out by businesses, community groups, cooperatives, private voluntary associations, and other non-government organizations. Privatization: Privatization can range in scope from leaving the provision of goods and services entirely to the free operation of the market to "public-private partnerships" in which government and the private sector cooperate to provide services or infrastructure. Privatization can include: 1) allowing private enterprises to perform functions that had previously been monopolized by government; 2) contracting out the provision or management of public services or facilities to commercial enterprises indeed, there is a wide range of possible ways in which function can be organized and many examples of within public sector and public-private institutional forms, particularly in infrastructure; 3) financing public sector programs through the capital market (with adequate regulation or measures to prevent situations where the central government bears the risk for this borrowing) and allowing private organizations to participate; and 4) transferring responsibility for providing services from the public to the private sector through the divestiture of state-owned enterprises. Deregulation: Deregulation reduces the legal constraints on private participation in service provision or allows competition among private suppliers for services that in the past had been provided by the government or by regulated monopolies. In recent years privatization and deregulation have become more attractive alternatives to governments in developing countries. Local governments are also privatizing by contracting out service provision or administration.
EXAMPLES:
CHALLENGES:
• Lack of competence in several departments • Difficult to find synergies; more costly
• Several points of contact for partners and students Factors Determining the Degree of Decentralization 1. Importance and significance of the decision: One of the important factors determining the degree of decentralization of authority is costliness of the decision. Normally, decisions which are costly in terms of money value involved or in terms of factors like goodwill and image of the establishment, employee morale or motivation tend to be centralized at the upper levels of management. In other words, it is very rare that authority for crucial decisions is delegated. Of course, the practice is not based on the assumption that people at the higher level in the managerial hierarchy do not make mistakes. It is believed, however, that higher level executives commit fewer mistakes since they are welltrained and experienced; and in possession of adequate information necessary to arrive at the decision. In fact, it is observed from the mode of managerial behavior that the determining factor to centralization of authority with regard to specific area or areas is the weight of responsibility since authority delegation does not implicate responsibility delegation. 2. Size of the enterprise: Another pertinent factor determining the degree of decentralization largely is the size of the organization. There is no denying the fact that larger the firm, the more the decisions to be made inviting number of departments and levels, the harder it is to coordinate them. Moreover, a number of executives and specialists need to be consulted in big establishments. In essence, decisions are often being delayed though delayed decisions cost much. Dis-economies of larger size may be greatly reduced by organizing the enterprises into a number of decentralized units resulting in economy and efficiency. Of course, exactness of the size, till now, is a controversial matter, nothing in particular or the categorically can be prescribed. But it is to be appreciated in all circumstance that the size of each individual unit should be so determined that departments or units are easily manageable with authority considerably decentralized.
3. Management attitude and philosophy: Decentralization is largely a question of character of top executives and their attitude. It may be noted that outlook and attitude of top management is, undoubtedly, a significant determinant of the extent and mode of authority dispersal. It is certain that an executive with traditional rigid outlook hardly contemplates delegating substantial authority. On the other hand, people with rational managerial temperament believe and want to rely upon participative approach of doing the work and are anxious to take maximum opportunity of individual initiative in the organization, opt for decentralization. 4. Control techniques: Another related factor determining the degree of decentralization is the magnitude of desire to obtain uniform policy with regard to such vital factors as price of a product, service, delivery, credit, etc., which can best be practiced by centralized authority. And there is no denying the fact that such a standing belief deters them from delegating authority to others-even to executives of regional offices. Of course, the internal advantage of uniform policy cannot be undermined altogether. But, in the same event, costs involved to centralize decisions must also be taken into account. It is further to be appreciated that centralization is likely to arrest individual initiative, dampening future growth of managerial personnel from within the organization. 5. Availability of capable executive: Nevertheless, availability of capable executive substantially determines the nature and extent of dispersal of authority. It is not uncommon that top executives willing to delegate authority and themselves handicapped in that respect for want of capable and qualified subordinates. Obviously, the key to safe decentralization is adequate training of subordinates and make them able to shoulder higher responsibility effectively. And perhaps it would be interesting to note that decentralization provides possible opportunities to impart the training required. 6. Availability of capable executive: So far the determinants of the extent of decentralization that have been analyzed belong to the interior of the firm. But certain external forces are also significant in determining the mode of decentralizing authority. There should not be any controversy
over the fact that forces like government controls, national unions, fiscal policy of the government, government purchases, etc., to a considerable length determine and mold the extent and nature of decentralization of an organization. In fact, these forces on many occasions deter the management of an enterprise to delegate authority down the echelon since many aspects of the functioning are virtually controlled by such echelon since many aspects of the functioning are virtually controlled by such external forces. Say for example, when raw material is subject to government allocation, the extent of authority that can be given to purchasing and factory managers is really a point of argument. Likewise, if pricing of any product is subject to regulation, hardly any authority could be given to sales manager to exercise and assert.
doc_370285067.docx
Importance of Decentralization!
DECENTRALIZATION
MEANING:
Decentralization is diffusion of authority. It is a process by which specific responsibility is assigned to subordinates. Such a responsibility, when assigned to subordinates, is always followed by sufficient authority which also is given to the executive and other subordinates at lower levels. Decentralization, therefore, refers to assigning of responsibility and delegation of authority to various executives and other subordinates at lower levels in an effort to make the lower level more responsible and accountant able to the job entrusted to them.
DEFINITION:
Advantages of Decentralization:
The following are the advantages of decentralized setup of an organization:
?
?
?
Distribution of Executive’s Burden: Certainly the decentralized setup offers an opportunity to the executive to share his burden with others at lower level in the process making himself free for more urgent and important work requiring his undivided attention. This smooth-ens the work gives speed to the work, creates cordial atmosphere and better understanding and develops team spirit among all those who are working for the organization. Saving in Time: The work originating at a particular level in an organization may be accomplished at the same level, if it falls within the limit of the authority of that level. Such work generally originates and accomplished. This naturally saves time and gives a speed to the work. Enthusiastic and Energetic Subordinates: The subordinate, who is asked to shoulder the responsibility with sufficient authority feels enthusiastic and functions with extra zeal and energy. In fact he feels elevated, his ego is satisfied and he is filled with energy simply because he is to work on his own. An involvement is there. A sense of being a part of the organization
?
?
?
?
?
and a sense of accomplishment gives the subordinate vigor and vision. He works hard and accomplishes the task. This helps the organization in achieving the target satisfactorily. Greater Efficiency and output: Since the responsibility is given with authority and power everyone entrusted with such a responsibility takes care of fulfilling his responsibility with utmost care. This care and caution and enthusiastic approach to the work ensure increased efficiency and output. Expansion Facility: It offers greater scope for expansion of business as decentralized setup makes free the top managing people from routine and other matters and thus time available to them may be utilized by them for new thinking and new ideas. This gives an opportunity to plane expansion and achieve the same without much of difficulty. Expansion of modern business houses is the direct outcome of decentralized system of organization. Secrecy maintained. Comparatively here in such a sets up secrecy can easily and effectively be maintained without much cost and unnecessary trouble. Utilization of available talents. The talents available can be best utilized in decentralized setup as everyone is given an opportunity to prove his worth. Such an opportunity is usually not available in centralized setup. This also ensures loyalty and develops team spirit as well. Capability is rewarded here and one is given a chance to improve, if someone, somewhere, lacks due to one reason or the other. Quick Decisions. For decision one is not required to reach on the top. Just one can take decision whenever one has to take without wasting time and energy in rituals and maintaining the channel. Unnecessary wastage of time energy and money is avoided giving overall better performance
Types / Forms of Decentralization:
Types of decentralization include political, administrative, fiscal, and market decentralization. Drawing distinctions between these various concepts is useful for highlighting the many dimensions to successful decentralization and the need for coordination among them. Nevertheless, there is clearly overlap in defining any of these terms and the precise definitions are not as important as the need for a comprehensive approach. Political, administrative, fiscal and market decentralization can also appear in different forms and combinations across countries, within countries and even within sectors. ? Political Decentralization: Political decentralization aims to give citizens or their elected representatives more power in public decisionmaking. It is often associated with pluralistic politics and representative government, but it can also support democratization by giving citizens, or their representatives, more influence in the formulation and implementation of policies. Advocates of political decentralization assume that decisions made with greater participation will be better informed and more relevant to diverse interests in society than those made only by national political authorities. The concept implies that the selection of representatives from local electoral jurisdictions allows citizens to know better their political
representatives and allows elected officials to know better the needs and desires of their constituents. Political decentralization often requires constitutional or statutory reforms, the development of pluralistic political parties, the strengthening of legislatures, creation of local political units, and the encouragement of effective public interest groups. ? Administrative Decentralization: Administrative decentralization seeks to redistribute authority, responsibility and financial resources for providing public services among different levels of government. It is the transfer of responsibility for the planning, financing and management of certain public functions from the central government and its agencies to field units of government agencies, subordinate units or levels of government, semi-autonomous public authorities or corporations, or areawide, regional or functional authorities. The three major forms of administrative decentralization -deconcentration, delegation, and devolution -- each have different characteristics. Deconcentration: Deconcentration--which is often considered to be the weakest form of decentralization and is used most frequently in unitary states-- redistributes decision making authority and financial and management responsibilities among different levels of the central government. It can merely shift responsibilities from central government officials in the capital city to those working in regions, provinces or districts, or it can create strong field administration or local administrative capacity under the supervision of central government ministries. Delegation: Delegation is a more extensive form of decentralization. Through delegation central governments transfer responsibility for decision-making and administration of public functions to semiautonomous organizations not wholly controlled by the central government, but ultimately accountable to it. Governments delegate responsibilities when they create public enterprises or corporations, housing authorities, transportation authorities, special service districts, semi-autonomous school districts, regional development corporations, or special project implementation units. Usually these organizations have a great deal of
discretion in decision-making. They may be exempt from constraints on regular civil service personnel and may be able to charge users directly for services. Devolution: A third type of administrative decentralization is devolution. When governments devolve functions, they transfer authority for decision-making, finance, and management to quasi-autonomous units of local government with corporate status. Devolution usually transfers responsibilities for services to municipalities that elect their own mayors and councils, raise their own revenues, and have independent authority to make investment decisions. In a devolved system, local governments have clear and legally recognized geographical boundaries over which they exercise authority and within which they perform public functions. It is this type of administrative decentralization that underlies most political decentralization. ? Fiscal Decentralization: Financial responsibility is a core component of decentralization. If local governments and private organizations are to carry out decentralized functions effectively, they must have an adequate level of revenues –either raised locally or transferred from the central government– as well as the authority to make decisions about expenditures. Fiscal decentralization can take many forms, including a) self-financing or cost recovery through user charges, b) co-financing or co-production arrangements through which the users participate in providing services and infrastructure through monetary or labor contributions; c) expansion of local revenues through property or sales taxes, or indirect charges; d) intergovernmental transfers that shift general revenues from taxes collected by the central government to local governments for general or specific uses; and e) authorization of municipal borrowing and the mobilization of either national or local government resources through loan guarantees. In many developing countries local governments or administrative units possess the legal authority to impose taxes, but the tax base is so weak and the dependence on central government subsidies so ingrained that no attempt is made to exercise that authority. ? Market Decentralization: The most complete forms of decentralization from a government's perspective are privatization and deregulation because
they shift responsibility for functions from the public to the private sector. Privatization and deregulation are usually, but not always, accompanied by economic liberalization and market development policies. They allow functions that had been primarily or exclusively the responsibility of government to be carried out by businesses, community groups, cooperatives, private voluntary associations, and other non-government organizations. Privatization: Privatization can range in scope from leaving the provision of goods and services entirely to the free operation of the market to "public-private partnerships" in which government and the private sector cooperate to provide services or infrastructure. Privatization can include: 1) allowing private enterprises to perform functions that had previously been monopolized by government; 2) contracting out the provision or management of public services or facilities to commercial enterprises indeed, there is a wide range of possible ways in which function can be organized and many examples of within public sector and public-private institutional forms, particularly in infrastructure; 3) financing public sector programs through the capital market (with adequate regulation or measures to prevent situations where the central government bears the risk for this borrowing) and allowing private organizations to participate; and 4) transferring responsibility for providing services from the public to the private sector through the divestiture of state-owned enterprises. Deregulation: Deregulation reduces the legal constraints on private participation in service provision or allows competition among private suppliers for services that in the past had been provided by the government or by regulated monopolies. In recent years privatization and deregulation have become more attractive alternatives to governments in developing countries. Local governments are also privatizing by contracting out service provision or administration.
EXAMPLES:
CHALLENGES:
• Lack of competence in several departments • Difficult to find synergies; more costly
• Several points of contact for partners and students Factors Determining the Degree of Decentralization 1. Importance and significance of the decision: One of the important factors determining the degree of decentralization of authority is costliness of the decision. Normally, decisions which are costly in terms of money value involved or in terms of factors like goodwill and image of the establishment, employee morale or motivation tend to be centralized at the upper levels of management. In other words, it is very rare that authority for crucial decisions is delegated. Of course, the practice is not based on the assumption that people at the higher level in the managerial hierarchy do not make mistakes. It is believed, however, that higher level executives commit fewer mistakes since they are welltrained and experienced; and in possession of adequate information necessary to arrive at the decision. In fact, it is observed from the mode of managerial behavior that the determining factor to centralization of authority with regard to specific area or areas is the weight of responsibility since authority delegation does not implicate responsibility delegation. 2. Size of the enterprise: Another pertinent factor determining the degree of decentralization largely is the size of the organization. There is no denying the fact that larger the firm, the more the decisions to be made inviting number of departments and levels, the harder it is to coordinate them. Moreover, a number of executives and specialists need to be consulted in big establishments. In essence, decisions are often being delayed though delayed decisions cost much. Dis-economies of larger size may be greatly reduced by organizing the enterprises into a number of decentralized units resulting in economy and efficiency. Of course, exactness of the size, till now, is a controversial matter, nothing in particular or the categorically can be prescribed. But it is to be appreciated in all circumstance that the size of each individual unit should be so determined that departments or units are easily manageable with authority considerably decentralized.
3. Management attitude and philosophy: Decentralization is largely a question of character of top executives and their attitude. It may be noted that outlook and attitude of top management is, undoubtedly, a significant determinant of the extent and mode of authority dispersal. It is certain that an executive with traditional rigid outlook hardly contemplates delegating substantial authority. On the other hand, people with rational managerial temperament believe and want to rely upon participative approach of doing the work and are anxious to take maximum opportunity of individual initiative in the organization, opt for decentralization. 4. Control techniques: Another related factor determining the degree of decentralization is the magnitude of desire to obtain uniform policy with regard to such vital factors as price of a product, service, delivery, credit, etc., which can best be practiced by centralized authority. And there is no denying the fact that such a standing belief deters them from delegating authority to others-even to executives of regional offices. Of course, the internal advantage of uniform policy cannot be undermined altogether. But, in the same event, costs involved to centralize decisions must also be taken into account. It is further to be appreciated that centralization is likely to arrest individual initiative, dampening future growth of managerial personnel from within the organization. 5. Availability of capable executive: Nevertheless, availability of capable executive substantially determines the nature and extent of dispersal of authority. It is not uncommon that top executives willing to delegate authority and themselves handicapped in that respect for want of capable and qualified subordinates. Obviously, the key to safe decentralization is adequate training of subordinates and make them able to shoulder higher responsibility effectively. And perhaps it would be interesting to note that decentralization provides possible opportunities to impart the training required. 6. Availability of capable executive: So far the determinants of the extent of decentralization that have been analyzed belong to the interior of the firm. But certain external forces are also significant in determining the mode of decentralizing authority. There should not be any controversy
over the fact that forces like government controls, national unions, fiscal policy of the government, government purchases, etc., to a considerable length determine and mold the extent and nature of decentralization of an organization. In fact, these forces on many occasions deter the management of an enterprise to delegate authority down the echelon since many aspects of the functioning are virtually controlled by such echelon since many aspects of the functioning are virtually controlled by such external forces. Say for example, when raw material is subject to government allocation, the extent of authority that can be given to purchasing and factory managers is really a point of argument. Likewise, if pricing of any product is subject to regulation, hardly any authority could be given to sales manager to exercise and assert.
doc_370285067.docx