Disadvantages of Decentralization
Decentralization can be viewed as an extension of delegation. It is the systematic delegation of managerial authority to middle and lower level management according to their weight age of responsibility. In practical, it is not possible to delegate absolute authority to the lower level management.
Decentralization can be extremely beneficial. But it can be dangerous unless it is carefully constructed and constantly monitored for the good of the company as a whole.
Decentralization has the following drawbacks or disadvantages:
Decentralization Increases Expenditure
Decentralization needs qualified, competent and skilled managers at the middle and lower levels. They are to be paid remuneration on the basis of their qualification and experience. Besides, there is the possibility of duplication of effort, which unnecessarily may increase cost of production.
Uniform policies not followed:
Under decentralization, it is not possible* to follow uniform policies and standardised procedures. Each manager will work and frame policies according to his talent.
Decentralization Creates Conflict
In decentralization, the top level management puts more pressure on departmental managers to increase output and revenue. In such a situation, every department lays more emphasis on their own departmental goals instead of corporate goals. This may give rise to inter-departmental conflict and too much fragmentation creates problems in coordination and control.
More Financial Burden
Decentralization requires the employment of trained personnel to accept authority, it involves more financial burden and a small enterprise cannot afford to appoint experts in various fields.
Decentralization Is Unsuitable For Emergency Situation
In decentralization, lower and middle level managers are assigned authority only for routine decisions. Whenever they face complex and non-programmed problems they cannot take a decision due to limited authority.
Problem of Co-Ordination
Decentralization of authority creates problems of co-ordination as authority lies dispersed widely throughout the organization.
Decentralization Maximizes Risk
In decentralization, decision making authority is delegated to the subordinate level. If subordinate level managers are unskilled and incapable, they may take wrong decision, which may increase the risks and result in losses.
Decentralization Is Unsuitable For Specialized Services
The concept of decentralization is not applicable in some types of services. It is not suitable for specialized nature of services like accounting, human resource, engineering, surgery etc.
Decentralization puts more pressure on divisional heads to realize profits at any cost. Often in meeting their new profit plans, bring conflicts among managers.