Decentralized Management - Meaning, Importance & Example

Published in Human Resources Terms by MBA Skool Team

What is Decentralized Management?

Decentralized management is defined as a uniform and organized spread of decision-making authority to all the levels of management and even to the individual employees. Under decentralized management, every employee working at a different level gets some share in the authority. The top-level managers still maintain the overall authority that influences the major decisions of the company while delegating decision-making responsibility to the lower levels. Decentralized management is quite often found in areas which require working in close proximity with clients and customers as it allows the managers to have flexibility and faster decision making.

Importance of Decentralized Management

Decentralized management structure, if implemented the right way, does a lot good to the organization in many ways:

• Development of subordinates: Decentralized Management requires the subordinates to work and make the decisions to the best of their abilities. This not only creates a challenging work atmosphere but also helps the subordinates to identify their true work potential and the identification of potential future leaders.

• A relief to the Top Management: Decentralized Management frees the top management of frequent supervisions of their subordinates for daily operations which in turn allows it to focus on policy decisions and decisions impacting return on Investment.

Decentralized Management

Advantages of Decentralized Management

1. Giving the authority of decision making to the lower levels of management increases their job satisfaction and makes them aware of the significance of their decision making to the company.

2. Decentralized Management allows lower-level managers to have more direct control over the day-to-day tasks and activities which, in turn, increases their efficiency and enables the managers to reward their employees based on their performance.

Disadvantages of Decentralized Management

1. It is very important to ensure that the employees and lower-level managers are competent in decision-making because if they lack competence, education, experience or training, it may lead to wrong decision making which may cost the organization as a whole.

2. It is less likely for smaller organizations to have a Decentralized Management structure successfully implemented as many low-level managers making their own decisions without a robust structure and supervision may not be effective.

Decentralized Management is more likely to be successful only for larger organizations as they have a more robust structure and a larger pool of talented managers to choose from to bear more responsibility.

Example of Decentralized Management

An example of Decentralized Management structure being implemented successfully is in Johnson & Johnson. J&J has 200 operating companies that produce consumer goods. J&J brought employees in its medical products division with its drug business. Together, they came up with an idea of putting a drug on a stent for a cardiovascular disease which proved to be a huge breakthrough in the market. To encourage Decentralization work even better, J&J uses "internal Ventures" as a method for employees to come up with new ideas. Also, J&J currently has companies in Japan run by the local management which understands the market it is dealing in, the local government and their customers.

Hence, this concludes the definition of Decentralized Management along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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