Explain the significance of decentralisation. Any two?
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Answer:
Types of Decentralization
1. Democratic Decentralization
It is the transfer of political authority and devolution of powers to the low levels of administration that are below the center. For example, the transfer of power to the states and district authorities from the center is a form of political decentralization.
2. Administrative Decentralization
It is the transfer of power to make decisions that involve utilization of natural resources, mobilization of other resources, administrative authority. It is again divided into divestment, devolution and deconcentration. Divestment is when the powers are transferred to some voluntary organizations from the government. A delegation is an exclusive form in which the powers and authority are delegated to the subordinate officials.
3. Fiscal Decentralization
It is the devolution of economic powers to the lower rungs. This is again divided into two elements. One is devolution of power to spend the money and allotting them with some funds. Another element is to allow the lower levels to collect revenue in the form of taxes and cess charges.
Importance of Decentralization
1. Accelerates Decision Making
Since middle and lower-level management is in charge of everyday operations, it accelerates the process of decision making. The freedom to take prompt decisions further enables them to execute their decisions quickly and effectively.
2. Improves Leadership Skills
As employees have the freedom to perform tasks individually, it offers them substantial exposure. In turn, it helps to create a work environment; wherein, employees can hone their executive skills significantly. As they learn to improve their skills and take responsibility for various tasks, it enhances the overall productivity of the firm.
3. Improves Administration
As the manager at each level is allowed to make decisions pertaining to their department, it offers them more room to bring necessary adjustments through the course of operation. In turn, it not only helps to improve the quality of the department’s performance as and when required but also allows them to come up with suitable solutions to tackle departmental challenges. All of this helps to improve the quality of administration at each level significantly.
4. Facilitates Greater Control
With the help of decentralization, top management can evaluate the performance of different departments more effectively. Further, it helps them to review and identify the prevailing shortcomings and helps to bring necessary changes to the same. This not just helps to lower the occurrence of operational shortcomings but also offers greater control over each area of operation.
Advantages of Decentralization
1. Facilitates Smooth Communication
With the presence of fewer hierarchical levels, there is a smooth flow of communication between the superiors and subordinates in each department. In turn, such a set-up comes in handy for the top management and keeps them informed about the grievances and functioning of each department.
Additionally, it allows them to reach out to their subordinates as and when required and implement decisions more effectively.
2. Promotes Expansion
With the middle and lower-level management being more involved with the everyday operation, the top management seeks the opportunity to focus on expansion and sustenance of profitability.
Further, with decentralization management is more adept at identifying areas that require more attention or reforms to emerge as more productive. This helps management to make necessary changes quickly and with more effect, thus facilitating expansion and profitability in a real sense.
3. Motivates Subordinates
Decentralization is an effective way to boost the morale and feeling of job satisfaction among employees. Being entrusted with responsibilities around the department offers them a sense of belonging and further inculcates a team spirit in them.
Although decentralization lays a positive impact on the productivity of a firm, it brings forth specific challenges as well.
Disadvantages of Decentralization
1. External factors
Factors like market fluctuations, government policies and intervention and trade union movement often present a challenge to optimize the productivity of a company through decentralization.
2. Lack of coordination
Each department is given due powers to delegate their operations adequately. However, different departments may not be eager to cooperate, which defeats the purpose of a decentralized structure altogether.
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