Principles and Practice of Management

UNIT STRUCTURE
1. Learning Objectives
2. Introduction
3. Concept and Importance of Departmentation
4. Principles of Departmentation
5. Bases of Departmentation
6. Meaning of Span of Management
7. Factors Determining Span of Management
8. Determination of Span of Management
9. Let Us Sum Up
10.. Answers to check your progress
11. Further readings
12. Possible Questions.


LEARNING OBJECTIVES



After going through this unit, you will be able to:

explain the meaning of Departmentation.

discuss the importance of Departmentation in an enterprise.

describe the principles of Departmentation

recognise the basis of Departmentation

explain the meaning of Span of Management

analyse the factors which determine the Span of Control

know how to determine Span of Management.


INTRODUCTION

After having discussed organisation, its importance and principles in the previousunit, now we shall explain the meaning and
importance of the term Departmentation which forms the very basis of the organisation structure of any enterprise.

You have already noticed that organisation involves the dividing and grouping of the works to be performed in the enterprise
on some logical basis so that team spirit can be developed. This grouping of activities and employees into various units for
the purpose of administration is called departmentation.


CONCEPT AND IMPORTANCE OF DEPARTMENTATION
Departmentation is a means of dividing the large functional organisation into smaller, flexible administrative units. It makes
grouping of activities into units and sub-units created through departmentation which are known as department, division,
section, branch etc. The process of departmentation takes place at all levels in the organisation. At the top level, the break
up of functions into activities is called Primary Departmentation. Grouping activities into separate units at the middle level is
called Intermediate Departmentation and at the lower level it is called Ultimate Departmentation or Secondary
Departmentation. Let us discuss some definitions of Departments.
1. According to Louis Allen, Departmentation is a means of dividing the large and monolithic functional organisation into
smaller flexible administrative units.
2. According to koonts and ODonnell : A department is a distinct area, division or branch of an enterprise over which a
manager has authority for the performance of specified activities.
In short, we need departmentation in an enterprise to divide the activities along with authority, responsibility and
accountability with sole objective to get the work done smoothly and in the best possible way.

Importance of Departmentation
The importance of departmentation is to facilitate successful operation and to create an environment for effective
performance. Grouping of activities and employees into departments makes it possible to expand an organisation to a large
extent. It enables the organisation to recapture some of the advantages of the small functional organisation while minimising
the disadvantages of that which comes with increasing size, diversity and dispersion.

The importance of departmentation may be stated in the following way:

Specification : Departmentation helps to grow specification in various activities which leads to improving the efficiency of
operation.

Feeling of autonomy : Departmentation gives independent charges to managers. The feeling of independence provides
satisfaction and in turn increases their responsibilities and efficiency.

Fixation of responsibility : Through departmentation, responsibilities of the work can be precisely and accurately fixed. The
authority and responsibility of each department is defined precisely.

Development of Management : The managers of each department perform specialised functions. They take independent
decision and develop themselves for higher positions. Departmentation facilitates the development of managerial personnel
by providing them opportunities for exercising initiatives.

Facility in Appraisal : Since the managers perform specified jobs, their performance appraisals become easier.
Departmentation facilitates administrative control as standards of performance are laid down separately for each
department.

Budget Preparation : It makes the preparation of budget for departments easier as well as for the organisation as a whole
easier.

Proper Supervision : As the authority for making decisions is diffused to the managers of the departments and works are
assigned to each individual department wise, supervision and control become easier.



PRINCIPLES OF Departmentation


In this sections we will discuss the following principles of Departmentation
1. Principle of attainment of organisational objectives : It implies that departments are designed or created to provide all the
facilities to achieve organisational objectives in an effective and efficient manner.

2. Principle of comprehensive departmentation : It implies that the entire functions of the enterprise are to be covered while
creating the departments.

3. Principle of inter-departmental co-operation : It implies that departments should be designed in such a way that maximum
inter-departmental co-operation is possible.

4. Principle of promotion of specialisation : It should help in enhancing both managerial and operational specialisation so
that organisational efficiency can be achieved.

5. Principles of cost-benefit analysis : It should be designed and developed in a manner to get the maximum benefit with
minimum possible costs.

6. Principle of special attention to key-result areas : Key-result areas are those areas which determine the long term growth
and survival of an organisation. It may include profitability, market standing, public relation etc.

According to this principle while creating departments the key-result areas should be given special attention.

7. Principle of flexibility : It implies that there should be sufficient scope to change the design or set of departments as per
the requirements of changing situation.

8. Principle of human consideration : Human consideration such as needs, values, attitudes, expectation, feelings etc. must
be taken into consideration while creating departments along with technical or financial considerations.

CHECK YOUR PROGRESS


A. State whether the following statements are True or False
a) The grouping of activities into various units and sub-units for the purpose of better administration is known as
departmentation.
b) Departmentation at the top level of management is known Ultimate Departmentation.
c) Departmentation creates an environment for effective performance.
B. Write two points of importance of Departmentation.



BASES OF DEPARTMENTATION



After discussing the meaning and importance of Departmentation, we will discuss the bases on which various groups or
departments are created in an organisation. Following are the most widely used bases for departmentation.
l Departmentation by Function
l Departmentation by Product
l Departmentation by Territory or Geographic Area
l Departmentation by Customer or Market
l Departmentation by Process or Equipment
l Composite or Combined Departmentation.
l Departmentation by function : When departmentation is done on the basis of functions, all the activities of the organisation
are classified into different departments like production, marketing, finance, personnel, purchasing, engineering, accounting
etc. Moreover, a single department may be sub-divided on the basis of the functions they perform. For example, the
marketing department may be sub-divided into advertising, marketing research, sales, sales promotion, product planning
etc.
The following chart depicts clearly the departmentation on the basis of function


Advantages : The main advantages of this basis of departmentations are
Benefits of specialisation.
Coordination among departments.
Simple organisation structure.

Disadvantages : The main disadvantages of this basis of departmentation are
Isolation of the departments.
Lack of coordination.
Hindered development of individuals.
Departmentation by product : Large organisations with number of products can follow the departmentations on the basis of
products.
All the activities related to each product are grouped separately. That is, each department becomes autonomous, dealing in
a particular product. For example, an organisation manufacturing a number of products like soaps, tooth paste, cosmetics,
blades, milk powder, etc. groups all the activities from manufacturing to distribution independently for each product. Let us
have a look at the following chart that depicts departmentation by product:-


Advantages : The main advantages of Departmention by product are -
l Profitability of each product can be assessed.
l Better service to consumers can be provided as the salesmen have thorough knowledge about the product.
l It is suitable for undertakings manufacturing varied and complex product lines.
l Flexibility in product lines can be attained as the addition or dropping of product lines is easy.
l Specilisation is made possible.
Disadvantages : The main disadvantages of departmentation by product are
l Confusion in the customers mind.
l Duplication and wastages of resources.
l Increased costs.
l Departmentation by Territory : Under this system the activities of the organisations are grouped into different departments
on the basis of the geographical area. For example, a company can carry out its activities by grouping them into regions like
eastern region, western region, southern region, northern region, etc. This type of departmentation is suitable for large
organisations which are geographically spread over to different areas
The following chart depicts the territorial departmentation :


Advantages : The advantages of territorial departmentations are -
1) Familiarity with customers in the particular region.
2) Enjoying advantages of local situations.
3) Benefits from geographical market segmentation.
4) Training for development.
Disadvantages : The disadvantages of territorial departmentations are -
1) Increase in costs.
2) Difficulty in coordination and control.
l Departmentaion by Customer : An organisations can divide its activities into departments on the basis of different customer
groups served by the organisation, such as industrial users, consumers, wholesalers, retailers etc.
The following chart depicts the customer-wise departmentation.

Advantages : The advantages of developmentations by customer are -
l Specialised service to customers.
l Supply of goods according to customers requirements.
Disadvantages : The disadvantages of departmentation by customer are
l Difficulty in cordination
l High cost.
l Under utilisation of human resources.
l Departmentation by Process : Departmentation by process implies the grouping of the activities into different departments
on the basis of the processes involved in production. For example, in a textile unit, departmentation can be done on the
basis of process i.e. spinning, weaving, dyeings, bleaching etc.

The following chart shows the departmentation by process :-

Advantages : The advantages of departmentation by process are-
l High operational efficiency.
l Benefits of specialisation.
l Reduction in manufacturing time and unnecessary movements in the process.
Disadvantage : The disadvantages of departmentations by process are -
l High Costs.
l Requiring continuous training.

l Combined Type : Combined type departmentation is a hybrid type of departmentation which tries to combine the
advantages of different types of departmentation. For example, there may be a combination of Functional and Product
departmentation.
LET US KNOW
In the process of departmentation, the following factors should be taken into account-
l It should facilitate control.
l It should ensure proper coordination.
l It should take into consideration the benefits of specialisation.
l It should not result in excess cost.
l It should give due heed to human aspects.


CHECK YOUR PROGRESS


A) State whether the following statements are True or False.
i) The purchasing and manufacturing departments within an enterprise are examples of Process Departmentation.
ii) In case of Departmentation by Product, location is very relevant
iii) Departmentation by process is important for trading concern.
B) Mention two advantages of Departmentation by Product




MEANING OF SPAN OF MANAGEMENT


Span of Management is also known as Span of control, Span of supervision and Span of responsibility
An organisation performs different types of activities. These activities have to be performed efficiently to achieve
organisational objectives. Therefore, the executives in charge of excuting the activities of the organisation have to perform
them efficiently. However, the executives are human beings and they have limited physical, psychological and intellectual
abilities and capacities to control or supervise subordinates directly. Therefore, it is necessary to determine the optimum
number of subordinates under one executive, which is known as Span of Management.

More precisely, the term Span of Management refers to the number of subordinates who can be effectively and efficiently
supervised directly by a superior. The span of management is the range of direct reporting by subordinates to a superior
above them. The span of management determines the shape of organisational structure. If the span of management is
smaller the number of managerial level will be more and if the span of management is large the number of level s will be
small.

It is a controversial term in management. According to Lyndall Urwick, The ideal number of subordinates for all superier
authorities is to be 4 and at the lowest level of organisation, the number may be 8 to 12. According to J.C. Worthy, A
manager may be able to manage as many as 20 to 30 subordinates. In a survey of 100 large companies conducted by
American Management Association, J. H Healey found that the number of executives reporting to the presidents varies from
1 to 24 and only 26 presidents out of 100 had as few as 6 or less subordinates. How many subordinates a manager can
effectively supervise is the most important determinant in the span of management.

Factors Determining span of management



In this section, we will discuss the features which help in the determination of Span of Management. These factors can be
classified into three groups -
1. Superior related factors
2. Subordinate related factors.
3. Organisation related factors.

Let us first discuss the superior related factors -

1. Superior Related Factors: The number of subordinates that a manager can supervise effectively is significantly
determined by his own personal qualities as described below -

a) Abilities and competence : If the manager can grasp the problems quickly, know well when to go into details and when to
confine to a particular level and is able to adapt himself to the changing situations, he can effectively supervise a large
number of subordinates and have a wider span of management.

b) Supervisory style : If a manager supervises closely, he can handle a relatively fewer subordinates. On the other hand, if
he defines his subordinates tasks and responsibilities clearly , supervises by the Exception principle and holds the
subordinates responsible for results, he can have a wider span of management.

c) Delegation of authority : A manager can supervise a relatively larger number of subordinates if he delegates to them
adequate authority to make their job related decisions and provides them scope to take initiative and motivates them to take
responsibility.

2. Subordinate Related Factors : The number of subordinates a manager can effectively supervise also depends on the
qualities and nature of the subordinates. These subordinate related qualities are explained below :

a) Abilities and Competence : The subordinates who are well trained and experienced in their jobs and who possess abilities
and interest to perform their tasks, allow supervisors to have a wide span of management.

b) Motivation and Commitment : The subordinates who are motivated to take initiative and responsibility as well as to
develop their abilities are the committed employees that put more time, effort and energy to their jobs.

c) Need for Authority : Subordinates with high need for autonomy prefer to make most of their decisions themselves,
whereas the dependent type of employees take their problems to their superiors for decision making and, consequently, are
put under more supervision.

3. Organisational Factors: The organisational factors which influence the span of management are -

a) Nature of Tasks : If tasks are simple, repetitive and programmed, it will need less of the supervisors time to plan, direct
and control their performance. Complex and variable tasks need more supervisory time in consultations and decision
making. Moreover, if all or most subordinates of a manager are engaged in the performance of similar or identical tasks, the
supervisor will devote less of his time to their co-ordination and control.

b) Geographical location : If all or most of the subordinates are located in the same place, a supervisor can have wider span
of management.

c) Plan and Policies : Organisations with well defined plan and policies make it possible for a supervisor to supervise
effectively a large number of subordinates.

d) Objective Criteria of Performance Evaluation : Availability of objective criteria of performance evaluation, as in the case of
production and sales, render it possible for a manager to have a wider span. On the other hand, where performance can not
be measured quantitively, span tends to be narrow.

e) Rate of Change : Enterprises which have products that are subjects to rapid changes in technology or operate in market
characterized by frequent changes in consumer tasks and preferences, need to make frequent changes in plans, policies,
task etc. In such organisations, span of management tends to be narrower as compared to that in stable industries such as
utilities, banking, insurance etc.

A wider span of management has the advantages of flexibility and adaptability to changing situations. It is conducive to the
creation of an environment in which the managerial initiative and abilities can grow. It also helps in motivating subordinates
and obtaining their commitment.

DETERMINATION OF SPAN OF MANAGEMENT


In a paper, first published in 1933, French Management Consultant. V.A. Graicunas analysed subordinate superior
relationships and developed a mathematical formula based on the geometric increases in complexities of managing as the
number of subordinates increases.

It is to specify the correct span of management for every situation, but the number of relationships of managerial positions
goes a long way in deciding the span of management. V.A. Graicunas, a French management consultant, formulated a
formula to determine the possible number of relationship of a manager having a given number of subordinates.

Graicunas has identified three types of superior-subordinate relationships which are as follows :

1. Direct Single Relationships: Relationships that arise from direct interaction between a manager and each subordinate.
This is one-on-one relation of a manager with each subordinate. 2. Direct Group Relationship : Relationhips that arise
between a manager and groups of subordinates.

3. Cross Relationships : Relationships that arise among subordinates themselves working under a manager.

Graicunas formulae to calculate these relationships are as follows:
1. Direct relationships = Number of subordinates.


Here n represents the number of subordinates reporting to the manager i.e. direct relationships.
According to Graicunas formula, a manager with two subordinates would create six relationships. For example, if he has two
subordinates and the six possible relationships would arise as follows:



As per Graicunas theory, the number of subordinates increases mathematically whereas number of relati onships increases
geometrically. The Table given below shows the number of possible relationships with different number of subordinates :

POSSIBLE RELATIONSHIPS WITH DIFFERENT
NUMBER OF SUBORDINATES



The Complexity of relationships among the superior and subordinates can be shown in the diagram below showing manager
M, dealing with 18 relationships when he has only three subordinates S1 S2 and S3. This complexity in relationships results
from the fact that Ms relationship with S1 when he is alone, is different from the situation when S1 is accompanied by S2 or
S3 or both.



criticised on the following grounds :
l It is based on the false assumption that all relationships arise with equal frequency. It is not so in real life situations.
l Another assumption on which this theory is based is that all relationships occur with equal intensity, which is not valid
l It does not determine the exact number of relationships that exists but indicates the possible number of relationships.
l It does not show the relationships that arise due to the sideways interaction such as with service departments.


CHECK YOUR PROGRESS


A. State whether following statements are True or False.
(a) The concept of span of control refers to the number of subordinates who are not directly reporting to a superior.
(b) The number of subordinates an executive can manage effectively is called his ideal span of management.
(c) The span of control is related to levels in the hierarchy of management.
(d) Narrow span of control with larger number of levels in the hierarchy leads to a tall structure.
B) Explain the relationships between levels of management and span of management.
C) Write any two factors which determine the span of management.





LET US SUM UP


Departmentation is the growing of activities into various units for the purpose of administration. It is a means of dividing the
large functional organisation into smaller, flexible administrative units . It is done at all the levels of management i.e. l ower,
middle and top level of management. It is always done on some bases such as functions, products, markets etc.

In ease of span of management, as human beings, each and every executive has limited physical and psychological ability
to control or supervise subordinates directly. The determination of the optimum number of subordinates under one executive
is Span of Management. The determination of number of subordinates depends on various factors, such as supervisors
ability along with quality and qualification of subordinates and nature of job.

ANSWERS TO CHECK YOUR PROGRESS


ANSWERS TO CHECk YOUR PROGRESS -1
A. a) True b) False c) True.
B)
i) Feeling of authority : The feeling of independence provides satisfaction and in turn increases their responsibilities and
efficiency.
ii) Budget Preparation : It makes preparation of budget for departments easier and for the organisation as a whole.
Answers to Check your Progress - 2
A. a) False b) False c) False.
B. i) Profitability of each product can be assured
ii) Better services can be provided to customers.
Answers to check your progress - 3
A. a) False b) True c) True d) True
B. The span of management is the range of direct reporting by subordinates to a superior above them. The span of
management determines the shape of organisational structure. If the span is narrow, the number of managerial level will be
more and if the span of management is large, the number of levels will be small.
C. The two main factors are discussed below -

i) Delegation of Authority : A manager can supervise a relatively large number of subordinates if he delegates to them
adequate authority to take their job-related decisions.
ii) Nature of tasks : If tasks are simple, repetitive and programmed, it will need less of the supervisors time to plan, direct
and control their performances; hence a large number of employees may be supervised.



FURTHER READINGS


1. Principles of Management by. L .M. Prasad.
2. Principles of Management by Nolakha
3. Principle of Business Management by. Kalwar and Pathak


POSSIBLE QUESTIONS


1. What is departmentation ?
2. Explain in brief the importance of departmentation.
3. Mention two principles of departmentation.
4. What are the bases of departmentations?
5. Explain the concept of Span of Management.
6. Mention two factors which determine the span of management
UNIT STRUCTURE
1. Learning Objectives
2. Introduction
3. Meaning of Centralisation, Decentalisation and Re-Centralization
4. Factors Determining the Policy of Centralisation and Decentralisation
5. Advantages of Centralization
6. Advantages of Decentralization
7. Delegation and Decentralization
8. Let Us Sum Up
9. Answers to check your progress
10. Further readings
11. Possible Questions.


LEARNING OBJECTIVES


After going through this unit, you will be able to:

explain the meaning of Centralisation, Decentralisation and Re-centralization

differentiate among Centralization, Decentralization and Re-centralization

identify the factors which determine the degree of centralization and decentralization

describe the advantages of centralization and decentralization

differentiate between Delegation and Decentralization


INTRODUCTION

We have already discussed the delegation of authority and span of management in the previous unit where it is explained
that substantial power of authority for management of an enterprise is vested in the hand of the top management. The origin
of power or authority develops the concept of centralization and decentralization of authority. The concept of centralization is
related to the philosophy of power and authority being solely vested in the top management. Decentralization is the
distribution of the same among the lower level management.


MEANING OF CENTRALIZATION, DECENTALISATION AND
RE-CENTRALIZATION

Centralization
Centralization refers to the situation in which a minimum number of job activities and a minimum amount of authority are
delegated to subordinates.
Thus, Centralization refers to the concentration of authority at one point or at different levels. Centralization reduces the
importance of subordinates and makes them mechanical, as the subordinates are only to execute whatever is ordered.
The two definitions of centralization given by Louis Allen and Henry Fayol are:
Centralization is the systematic and consistent reservation of authority at central points within the organisation. -
Louis Allen.
Everything that goes to increase the importance of the subordinates role is decentralization, everything which goes to
reduce it is centralization. - Henry Fayol.
Decenteralization
It refers to the situation in which a significant number of job activity and a maximum amount of authority are delegated to
subordinates.
It signifies the necessity of dividing the managerial task to the lowest level of managers, with an intention to grant all the
authority to make the particular division or department autonomous. Each department has the full authority to decide on all
matters concerning the department except those matters which need to be left to the top management to decide.

Centralization and decentralization should not be confused with location of work. An organisation having branches i n
different places may be centralized. Similarly, an enterprise may be decentralized even though all its offices are located in
one building. Here we will discuss the definitions of decentralization.
Decentralization refers to the systematic efforts to delegate to the lowest levels all authority except that which can only be
exercised at central points. - Louis Allen.
Decentralization is simply a matter of dividing up the managerial work and assigning specific duties to the various executive
skills. - Newman, Summer & Warren.
Recentralization
Centralization and decentralization depend on many factors and so the degree of centralization and decentralization also
changes with the changing situation. It should not be supposed that authority once decentralized is decentralized for ever.
Recentralization means back to centralization. If the situation demands, the top management may hold back the power or
authority from the lower level managers which were earlier decentralized.

Thus, the concept of centralization, decentralization and re-centralization is flexible and not static. The concept changes with
the change of influencing factors or situations.


CHECK YOUR PROGRESS


A) State whether the following statements are true or false-
1. The practice of top-management to hold back the authority from lower level managers is termed as re-centralisation.
2. Centralization means concentration of authority at the top level.
3. In decentralization, the departments are considered as autonomous organizations.
4. Centralization increases the importance of subordinates.
Decentralization is not possible in an organization whose offices are located in one building



FACTORS DETERMINING THE POLICY OF
CENTRALIZATION AND DECENTRALIZATION


You are now aware with the term Centralization and Decentralization. You have also got the idea that the extent of
centralization and decentralization of authority in organizations depends on various factors. Now let us discuss the various
factors which determine the policy of centralization and decentralization. The management policy for determining the level or
degree of centralisation and decentralization depends on the following factors
Size and dispersal of operation
Small enterprises prefer functional structures which provide economy in its operations. On the other hand, the large size
enterprises with dispersal operations prefer decentralization for better productivity, efficiency and control.
Level of diversity of product-lines
Greater product diversity needs more decentralization as functional structure fails to pay balanced emphasis on each
product line.
Nature of growth
Growth of an enterprise takes place either by internal expansion or by mergers/ amalgamations. In case of the internal
growth of an enterprise, the functional structure may be retained till it becomes impossible to manage and control. But in
case of amalgamations and mergers, decentralization is preferable.
Nature of Business
Functions such as purchasing, production and marketing are subject to a greater degree of decentralization than service
functions. Service functions such as personnel, finance, research and development etc. are subject to centralization for
better control and improving the quality of service.
Quality of Executives
Unless the subsequent level executives are able and experienced, they can not be entrusted with the responsibility of
making important decisions. Therefore, the decentralization depends on the quality of lower level executives appointed in an
organisation.
Management by Exception
It advocates that the top management should concentrate its attention only on long-term and non-recurring issues leaving all
operational details to be taken care of by next level executives.
Effective Control System
Effective control system can motivate the top level management for decentralization of authority whereas inadequate control
system forces the top management for centralization of authority.


CHECK YOUR PROGRESS


State three factors which determine the level of centralization in organisations.



ADVANTAGES OF CENTRALIZATION


In this section we will discuss the advantages of centralization.
The advantages of centralization are:
Consistency in decision making
As decisions are taken only by a few experienced top level management people, it can retain consistency and better co-
ordination during decision the making process.
Lower administration costs
Centralization of authority reduces the administration costs as the organization can operate with a limited number of
managers. Particularly, centralization is recommended during highly inflationary conditions.
Reduces inter-departmental Conflicts
Centralization reduces inter-departmental conflicts as decisions are taken by top level management with an orientation
towards departmental co-ordination.
Improves policy control
Decentralization creates freedom of actions and diversity of decisions. Loose control may create some serious losses for
some enterprises and may lead to recentralization of authority. Centralization, on the other hand, improves policy control.

ADVANTAGES OF DECENTRALIZATION


Now let us discuss the advantages of decentralization-
Reduces the burden of top executives:
A major advantage of decentralization is that it reduces the burden of the top executives of an enterprise. The top executives
become free from the burden of taking too many decisions and, therefore, can concentrate their thinking on long- term
planning.
Motivates subordinates for high performance and improved morale:
Decentralized organisation structure promotes the development of initiative, responsibility and morale of subordinates.
Improved communication, counseling and leadership foster the personality and the working relationships among the
subordinates.
Facilitates Diversification:
Decentralisation facilitates the expansion area- wise and function- wise and allows the diversification of product
lines. Such expansion always helps the enterprise for survival, growth and development as the loss of one product or one
area would be compensated by the other products or areas.
Develops the quality of managerial personnel:
The decentralized unit becomes the training ground for developing the managerial qualities of the executives for high
managerial positions. Decentralization gives power, initiative and responsibility to a number of executives and provides
opportunities for their all round development.
Ensures effective control:
Decentralization of activities through divisions/ departments ensures the establishment of standards and, therefore,
evaluation of performance becomes easier for controlling the operations of divisions


CHECK YOUR PROGRESS



A . State two advantages of centralization and two advantages of decentralization.
Advantages of centralization-
Advantages of decentralization





ACTIVITY


Quality of subordinates is an important factor in deciding the degree of centralization or decentralization in an
organisation. Do you agree with the statement? Give reasons for your answer.


DELEGATION AND DECENTRALIZATION


There should not be any confusion between delegation and decentralization. They are two different concepts. We can draw
the differences between the two terms as below:
1. Delegation is a process while decentralization is the end result of the deliberate policy of making delegation from top to
bottom in the organisation. Delegation can take place without decentralization but decentralization is not possible without
delegation of authority.
2. Delegation may be confined to a manager and subordinates. But decentralization involves systematic distribution of
authority at all levels and in all functions of the organisation. Thus, decentralization is wider in scope and consequences t han
delegation.
3. Delegation is compulsory but decentralization is optional. Delegation is almost an essential technique because a manager
can not do everything himself. An organisation cannot function without decentralization. Thus, delegation is essential where
as decentralization is matter of choice and preference of top management.
4. In case of delegation, the particular superior who has delegated authority to his subordinate exercises control over him. But
in case of decentralization the top management exercises the overall control. The superior at each level exercises control
over his immediate subordinates.
5. In case of delegation of authority, the authority for decision making may not be granted, such authority may be the right to
utilize companys physical facilities for discharging assigned duties. On the other hand, the authority or power of decision
making must be vested in the subordinate in case of decentralisation.


CHECK YOUR PROGRESS


State two differences between delegation of authority and decentralization.




ACTIVITY


As a secretary of your club, what decisions are you going to make centralized and what decisions are you going to make
decentralized? Give reasons for your answer



LET US SUM UP


There are noticeable differences from organisation to organisation in the relative number of job activities and the relative
amount of authority delegated to subordinates.

The terms centralization and decentralization describe the general degree to which delegation exists within an
organisation. The appropriate degree of decentralization for an organisation depends on the unique situation of the
organisation. With the change of situation the degree of decentralization should be adjusted to get expected results. Such
adjustment is called as re-centralisation or re-decentralisation. Both centralization and decentralization have their merits
and demerits.

In practice centralization and degree of decentralization should be evaluated properly in relation to prevailing situation.
Further, there are number of differences between delegation of authority and decentralization. Delegation of authority is a
must in an organisation as a manager can not perform all work himself. An organisation can run without decentralization.

ANSWERS TO CHECK YOUR PROGRESS


Answers To Check Your Progress 1

(i) True
(ii) True
(iii) True
(iv) False
(v) False

Answers To Check Your Progress 2
B) (i) Size and dispersal of operation (ii) Nature of growth (iii) Nature of business

Answers To Check Your Progress 3
A)
Two advantages of centralization are
i. Lower administration costs;
ii. Reduces inter-departmental conflicts.
Two advantages of decentralization are-
i. Reduces the burden of top executives;
ii. Develop the quality of managerial personnel.

Answers To Check Your Progress 4
A)
1. Delegation can take place without decentralization but decentralization is not possible without delegation.
2. Delegation is compulsory but decentralization is optional in an enterprise.



FURTHER READINGS


1. Principles of Management by L.M. Prasad.
2. Principles of Management by Sarkar, Sarma & Gupta.
3. Principles of Business Management by Kalwar and Pathak.


POSSIBLE QUESTIONS

(i) What is centralisation ?
(ii) What is decentralization ?
(iii) What is re-centralisation ?
(iv) Write any four factors which determine the policy of centralisation and decentralization
Centralisation v Decentralisation
Author: Jim Riley Last updated: Sunday 23 September, 2012
Organisational structure - Centralisation v Decentralisation
One of the issues that a business needs to address is where decision-making power
resides in the organisational structure.
Decision-making is about authority. A key question is whether authority should rest with
senior management at the centre of a business (centralised), or whether it should be
delegated further down the hierarchy, away from the centre (decentralised)
The choice between centralised or decentralised is not an either/or choice. Most large
businesses necessarily involve a degree of decentralisation when it starts to operate from
several locations or it adds new business units and markets.
The issue is really how much independence do business units or groups within a business
have when it comes to the key decisions?
Centralised structures
Businesses that have a centralised structure keep decision-making firmly at the top of the
hierarchy (amongst the most senior management).
Fast-food businesses like Burger King, Pizza Hut and McDonalds use a predominantly
centralised structure to ensure that control is maintained over their many thousands of
outlets. The need to ensure consistency of customer experience and quality at every
location is the main reason.
The main advantages and disadvantages of centralisation are:
Advantages Disadvantages
Easier to implement common policies and
practices for the business as a whole
More bureaucratic often extra layers in the
hierarchy
Prevents other parts of the business from
becoming too independent
Local or junior managers are likely to much
closer to customer needs
Easier to co-ordinate and control from the
centre e.g. with budgets
Lack of authority down the hierarchy may
reduce manager motivation
Economies of scale and overhead savings
easier to achieve
Customer service does not benefit from
flexibility and speed in local decision-making
Greater use of specialisation
Quicker decision-making (usually) easier
to show strong leadership

Decentralisation
In a decentralised structure, decision-making is spread out to include more junior
managers in the hierarchy, as well as individual business units or trading locations.
Good examples of businesses which use a decentralised structure include the major
supermarket chains like WM Morrison and Tesco. Each supermarket has a store manager
who can make certain decisions concerning areas like staffing, sales promotions. The store
manager is responsible to a regional or area manager. Hotel chains are particularly keen on
using decentralised structures so that local hotel managers are empowered to make on-
the-spot decisions to handle customer problems or complaints.
The main advantages and disadvantages of this approach are:
Advantages Disadvantages
Decisions are made closer to the customer Decision-making is not necessarily strategic
Better able to respond to local circumstances More difficult to ensure consistent practices and
policies (customers might prefer consistency
from location to location)
Improved level of customer service May be some diseconomies of scale e.g.
duplication of roles
Consistent with aiming for a flatter hierarchy Who provides strong leadership when needed
(e.g. in a crisis)?
Good way of training and developing junior
management
Harder to achieve tight financial control risk of
cost-overruns
Should improve staff motivation