Decentralization

Decentralisation

In order to evaluate the effectiveness of decentralisation we have to first take have a thorough understanding of the company's current state of operations. As of early 2010 the company is operating in 13 dealership locations, selling 10 brands and is employing approximately 325 people.

The topic of decentralisation is closely associated with how decisions are made in a company. The theories of decision making processes dictate that a decision has its origin in some kind of problem. The decision maker bears the responsibility of forming a set of alternatives to be evaluated, and the optimum alternative is to be chosen. This process is illustrated in Figure 1 below.

Figure 1

The effectiveness of decentralisation lies upon its ability in minimising the combined costs of lack of information regarding:

a) The problem situation

b) The organization's overall situation, and

c) The appropriate organisational policy

Figure 2

The relationship between lack of information and the level of hierarchy is illustrated by Figure 2 above. The level of centralization/decentralization enforced by a company will influence how the process of decision making will be done. Generally speaking, in most cases even individuals of lower administrative position can influence the formulation and evaluation of these alternatives. It is the degree of centralization/decentralization that determines the degree of influence possessed by individuals of different administrative levels. Ultimately, the major responsibility is borne by the final decision maker to evaluate:

a) The importance of the problem

b) The appropriation of the alternatives

c) The congruence of recommended alternatives with regards to company goals and strategies.

To further assess the effectiveness of decentralisation, the benefits and costs of decentralisation have to be taken into consideration as stated previously.

Advantages

1) Improved responsiveness to local needs

2) Faster decision making

3) Motivates subunit managers

4) Catalyses the development and learning of management

5) Provides