Benefits or advantages of decentralization:
- Easier for senior management to delegate responsibility if the enterprise is split into divisions. By delegating responsibility, the managers might be motivated to work harder
- Decisions will be made more quickly as the divisional managers will not need to send information up to top management and then wait for instructions to be passed down.
- Divisional managers will make better decisions than centralized management as they are closer to the daily operation of the business
- Top management will be free to concentrate on strategic issues.
- Easier to monitor the performance of products and or regions if the business is divisionalized on product and or regional lines
- Easier to allocate resources to a division than to a product or region which is contained within a centralized structure
- Easier to expand, close or move a division.
In brief, decentralization assists top management in improving motivation, quicker communication, better control and faster or quicker decision-making.
The main challenge or disadvantage of decentralization is:
- Get all the divisional managers to work for the advantage of the group as a whole. Especially if divisional managers receives performance-related pay hence they may put the needs of their own division ahead of the group. Even without performance-related rewards, they may take decisions which seem sensible from a divisional point of view but not good for the group as a whole.