What are the Merits and Demerits of Decentralization?

Decentralization means consultant delegation of authority throughout the organization. It is pushing down authority and power decision-making to the lower levels of the business organization.

Decentralization is very effective in the day-by-day operations of a business firm.

Merits of Decentralization

1. It motivates subordinates to high goals.
2. It helps in fast and accurate decision-making at the point nearest to the place of actual operations.
3. Decentralization reduces the burden of top executives.
4. It facilitates the diversification of product lines.
5. This leads to effective supervision and control because managers at low levels have adequate schedules and authority to make changes in work assignments, change production schedules, recommend promotions, and take disciplinary action. It permits management by objectives and self-control.
6. It contributes to the survival and growth of the organization.

Demerits or Limitations of Decentralization

1. Decentralization creates damage and top management May lose Central over the functioning of different departments.
2. This can not be possible due to external factors like Market uncertainty and trade union movement, and government interventions.
3. It is not suitable for small firms having narrow product lines it is also not suitable for specialized services like Accounting, finance research, development, etc.
4. This is expensive because it increases administrative expenses.
5. It may lead to Undesirable competition and conflict among different units of the Enterprise because some units may attempt to optimize performance at the cost of others in order to increase their own profitability.

Thus, there are some pros and cons of using a decentralization system in a business enterprise.