What is Decentralization? Definition, Example, Factors, Objectives, Limitations

Decentralization, on the other hand, is a method and approach by which powers and responsibilities are transferred to units away from the center. It is the transfer of authority from central administration to (state and/or) local administrations or governments. Much of the decentralization that has taken place in the past decade has been motivated by political concerns. However, there is also a strong rationale for decentralization in terms of economic efficiency, public accountability, and empowerment. Technology includes tools, materials, skills, techniques and processes by which goals are accomplished in the public and private spheres. Concepts of decentralization of technology are used throughout all types of technology, including especially information technology and appropriate technology.

Performance evaluation of each decentralized unit helps in exercising adequate control. Another important pointer in the advantages and disadvantages of decentralization is that decisions are taken and executed by authorized personnel. This, in turn, results in faster and accurate decisions which are well aware of the real scenario. While carrying out a discussion on the advantages and disadvantages of decentralization, it is imperative to note that it aids subordinates in exercising their own judgment. 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. Further, with decentralization management is more adept at identifying areas that require more attention or reforms to emerge as more productive.

Derived forms of decentralize

Millions of users are connected to one another and no user has complete authority over it. Decentralization is essential in the present business scenario where the organizations are becoming vast and diversifying into different product lines. As we have already seen that decentralization is a useful practice for the organization operating on a large scale.

  • This process is experimental and the keywords may be updated as the learning algorithm improves.
  • If they prefer considering everyone’s decision, they can go for decentralization.
  • It allows them to manage their respective departments in the way they want to.
  • Good examples of decentralised business are Hotels, supermarket, Dress showrooms and etc.

Decentralization releases the management from operational decision making, facilitating them to engage themselves in future strategic planning. The managers exercise better control over the operations of the subordinates by taking disciplinary actions. They can make decisions related to production schedules, promotions and leaves taken by the subordinates. However, for the corporates running on a vast scale, a decentralized system is necessary for the smooth functioning of the business. Decentralization can add inertia to the expansion process of a growing business. This might often result in the opening of new business units in varying geographical locations.

Concepts of decentralization have been applied to group dynamics and management science in private businesses and organizations, political science, law and public administration, technology, economics and money. India is a country with cooperative federalism which means that the entire structure is such that it is decentralized with a twist of centralisation in certain spheres. Reservations for the SC, ST, OBC and women are extended to the panchayats at the local level also. This was brought through the 73rd and 74th constitutional amendments.

There are times when the managers have to take immediate and unplanned decisions at operational levels; it is only possible in decentralized organizations. It changes the whole organizational structure right from the top management to the bottom level. Like other business strategies, decentralization standard costing is also purposeful. In centralized system, there was involvement of one server so it was easy to hack. Decentralized networks enable to sharing of information privately and securely. The user doesn’t have to take permission so has the full authority to publish something.

So when the user shares the data, the data is shared among the other peers with the help of protocols. A database is maintained so as to keep track of all information. But now he has to plan for decentralization of his organization.

It is a wonderful accident of history that the internet and web were created as open platforms that anyone — users, developers…

But there are certain shortcomings of decentralization too which makes it unsuitable for all type of organizations. However, if the mindset of the administration is such that they solely prefer to make all the business-related decisions, they won’t go for decentralization. This decentralization practice leads to better management of each outlet as well as the manufacturing unit. It also facilitated the owner to plan for organizational growth and development.

Decentralization: Concepts and Definitions

Decentralization provides for self-learning of the managers by facing the problem, finding the solutions themselves and taking the correct decisions. It adds on to the skills, experience and expertise of the managers in their respective departments. This process is experimental and the keywords may be updated as the learning algorithm improves. Add decentralization to one of your lists below, or create a new one. This website is using a security service to protect itself from online attacks.

It never happens instantly. The business game is longer than you know.

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. 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. The biggest problem of Decentralized system is there is no consistency. Some unauthentic users try to share some harmful data which might result in any fatal data loss. The management has to take certain crucial strategical decisions which require a lot of analysis and planning.

It also provides authority to the managers to handle unexpected situations independently. It allows them to manage their respective departments in the way they want to. All computers have to be updated individually with new software, unlike a centralized computer system. Decentralized systems still enable file sharing and all computers can share peripherals such as printers and scanners as well as modems, allowing all the computers in the network to connect to the internet. While talking about the advantages and disadvantages of decentralization, it is imperative to note that substantial autonomy is enjoyed by every single division. This, in turn, makes it difficult to coordinate the overall activity.

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Since there is no central authority, there is no central server. Therefore many organizations are now switching to a decentralized network. The products of Google from online search to mobile Android are given the freedom to work independently. It is the transfer of power to make decisions that involve utilization of natural resources, mobilization of other resources, administrative authority.

In this way, the top-level management can create healthy competition amongst different divisions. The good news is that billions of people got access to amazing technologies, many of which were free to use. This in turn stifled innovation, making the internet less interesting and dynamic. Centralization has also created broader societal tensions, which we see in the debates over subjects like fake news, state sponsored bots, “no platforming” of users, EU privacy laws, and algorithmic biases. 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.

Another constitutional provision like article 243E facilitates the constitution of local panchayats before the end of the term. It also facilitates the devolution of finances and powers from the state government to the local government. The panchayats are allowed to collect certain types of taxes and cess charges. They are also given some funds to take up development activities. Political decentralization transfers policy and legislative powers from central governments to autonomous, lower level assemblies, and local councils that have been democratically elected by their constituencies.

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.

It creates an efficient, secured, and reliable administration. The biggest advantage of decentralization is if a part of the network crashes, the whole network will work uninterrupted. The main reason why decentralization is better than centralization is the flexibility and data to adapt to market demands quickly. Fiscal decentralization accords substantial revenue and expenditure autonomy to local governments, including the power to levy taxes and user charges. The variety of existing definitions and concepts of decentralization within the literature clearly indicates that different perspectives and incentive systems have been applied to a frequently used term.

Administration is looking after the functioning of certain people or an organization. In the centralisation of administration, all the powers rest with one authority at the top. In the case of decentralization, important powers are kept with the center and some powers and authorities are devoted to the lower levels of administration. In the case of decentralization, voices of the marginalized, poorest of the poor and locals are heard. In the case of centralized authority, as the decision is taken by a single person or group of persons, they might miss out on some local issues. But, this form of administration helps in maintaining greater control over the people.