FACTORS DETERMINING THE EXTENT OF DECENTRALISATION

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Decentralization is the process by which top management cedes some control and decision-making authority to middle or lower levels of management.

The following are factors that determine the extent of decentralization of authority:

1. Cost of action: The costliness of the action to be decided upon can determine the extent of decentralization.

If the cost of the action to be taken is very expensive, then it will be decided at higher levels of management.

If the cost of the action to be taken is inexpensive, it may be decide at lower levels of management.

For instance, the top management will determine whether to buy a new factory, whereas lower management may be given the authority to decide whether to buy a few stationary items.

2. Uniformity of policies: The extent of decentralization is also determined by the uniformity of policies.

Generally, if the organization structure is decentralized, it will be very difficult to maintain uniform policies throughout the organization.

So, an organization that want to maintain uniform or consistent policies should opt for a centralized organizational structure rather than a decentralized structure.

3. Diversification : The degree to which the product lines are distinct and diversified also determines whether an organization will be centralized or decentralized.

Decentralization is advised if the company's product lines are considerably diverse from one another; otherwise, centralization should be adopted.

For instance, a business that manufactures and sells both industrial and consumer goods will choose a decentralized structure because it has many product lines.

4. Philosophy of top management: The philosophy of top management determine whether the organization is decentralized or centralized authority.

The organizational structure will be centralized if the top management favors consolidating authority among a small number of individuals.

The organizational structure will be decentralized if the top management believes that power should be distributed among the entire organization.

5. Location of different components of the organizational structure: Decentralization may be favored if organizational processes are distributed and dispersed over many places in a country.

Centralization could be desirable if all organizational processes are carried out in one place.

6. Numbers of competent personnel available: Decentralization is only possible when there are adequate number of competent personnel in the organization. 

If the number of qualified personnel is inadequate, then centralization may be used.

7. Size of the organization: The size of the organization is another important determinant of the extent of decentralization.

If the organization is very large, decentralization is advisable.

If the organization structure is very small, centralization is advisable.

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