Decentralization of Authority’ refers to the dispersal of authority for decision-making in various levels of organizational operations throughout the organization – Delegation and Decentralization
In the words of Louis A. Allen
“Decentralisation is the systematic effort to delegate to the lowest levels of authority except that which can be exercised at central points.”
Decentralization is actually an extension of the concept of delegation.
Delegation can take place from one superior to one subordinate and is a ‘complete process, but decentralization takes place only when the fullest possible delegation or distribution of authority is made to all–or most of the people in the organization in respect of the specific function, activity or responsibility.
It is, however, to be remembered that decentralization does not necessarily mean distribution of authority in respect of all activities.
One function may be decentralized and another stay centralized.
For example, in an automobile manufacturing concern, the sales function may be distributed or decentralized product division, while labour relations may remain centralised. The extent to which decentralisation exists in any organisation depends on the extent to which clear-cut decision-making authority is vested in levels below the top management level.
Therefore, when delegation is widespread and authority is delegated to lower levels of management, to all, or most of the people who are untested with responsibilities, decentralisation of authority takes place.
On the other hand, when delegation 1s restricted to the top level of management, and the subordinates are simply to implement the decisions taken at the top level, the authority is said to be centralised to that extent.
Decentralisation is a question of degree. It is not what is delegated but how much is delegated. Henry Fayol pointed out “everything that goes to increase the importance of the subordinate’s role is decentralisation, everything which goes to reduce it is centralisation.”
Decentralization is useful basically to large organisations with multiple products or operating in different geographical locations. Decentralization becomes inevitable in an industry with every growth in size.