Decentralisation is a vital structural practice in any business or its managerial set-up. It helps to keep operations smooth and uninterrupted and also enhance the proficiency and quality of management.

This being said, let’s take a detailed look at the topic and try to gauge its importance and overall influence in any modern-day business set-up. To begin with, let’s start from the basics and take a quick look at the Meaning of Decentralisation below.

What is Decentralisation?

In brief, Decentralisation can be defined as the organisational structure.  In such a structure, the top management of a firm entrusts the middle and lower-level management with the responsibility to take decisions pertaining to the firm’s daily operations.

 To elaborate, they are responsible for planning, crafting suitable strategies and taking necessary decisions to boost the proficiency at each level and in turn, optimising the overall productivity of the company.

Owing to its numerous benefits and positive influence on the company’s performance, business owners tend to prioritise the structure of power delegation. Resultantly, they can make the most of the time and opportunity to focus on the major concerns of their business and also to plan its expansion. 

Importance of Decentralisation

Now that we have gained a basic idea about decentralisation let’s glance through its vital role in a commercial set-up mentioned below –

  1. Accelerates  Decision Making

Since middle and lower-level management is in charge of everyday operations, it accelerates the process of decision making. The freedom to take prompt decisions further enables them to execute their decision quickly and effectively.

  1. Improves Leadership Skills

As employees have the freedom to perform tasks individually, it offers them substantial exposure. In turn, it helps to create a work environment; wherein, employees can hone their executive skills significantly. As they learn to improve their skills and take responsibility for various tasks, it enhances the overall productivity of the firm. 

  1. Improves Administration

As the manager at each level is allowed to take decisions pertaining to their department, it offers them more room to bring necessary adjustments through the course of operation. In turn, it not only helps to improve the quality of the department’s performance as and when required but also allows them to come up with suitable solutions to tackle departmental challenges. All of this helps to improve the quality of administration at each level significantly. 

  1. Facilitates  greater control

With the help of decentralisation, top management can evaluate the performance of different departments more effectively. Further, it helps them to review and identify the prevailing shortcomings and helps to bring necessary changes to the same. This not just helps to lower the occurrence of operational shortcomings but also offers greater control over each area of operation.

Test Your Knowledge: In what other ways do you think decentralisation is essential for a firm?

Advantages of Decentralisation 

Moving on, let’s quickly check out how a firm benefits through decentralisation –

  1. Facilitates Smooth Communication

With the presence of fewer hierarchical levels, there is a smooth flow of communication between the superiors and subordinates in each department. In turn, such a set-up comes in handy for the top management and keeps them informed about the grievances and functioning of each department.

Additionally, it allows them to reach out to their subordinates as and when required and implement decisions more effectively.

  1. Promotes Expansion 

With the middle and lower-level management being more involved with the everyday operation, the top management seeks the opportunity to focus on expansion and sustenance of profitability. 

Further, with decentralisation management is more adept at identifying areas that require more attention or reforms to emerge as more productive. This helps management to make necessary changes quickly and with more effect, thus facilitating expansion and profitability in real sense.  

  1. Motivates Subordinates

Decentralisation is an effective way to boost the morale and feeling of job satisfaction among employees. Being entrusted with responsibilities around the department offers them a sense of belonging and further inculcates a team spirit in them.

Although decentralisation lays a positive impact on the productivity of a firm, it brings forth specific challenges as well.


Disadvantages of Decentralisation

Take note of these common challenges of a decentralised firm –

  1. External factors

Factors like market fluctuations, government policies and intervention and trade union movement often present a challenge to optimise the productivity of a company through decentralisation. 

  1. Lack of coordination

Each department is given due powers to delegate their operations adequately. However, different departments may not be eager to cooperate, which defeats the purpose of a decentralised structure altogether. 

Give your opinion: Imagine yourself as an owner of a company. How would you overcome the shortcomings of a decentralised firm?

Difference between Centralisation and Decentralisation

Check out the table below to find out the difference between centralisation and decentralisation –





In such a managerial set-up, only the top management has the power to make decisions.

In such a managerial set-up, decision-making powers are delegated across different levels.


It is suitable for small scale firms.

It is suitable for large scale firms.

Information flow

Mostly vertical, i.e. flows from the top level to the low level.

Open and free flow.

Decision making

Slow process.

Relatively faster.


Only handpicked employees can partake in the decision making process.

Individuals from each level partake in the decision-making process actively. 


Less likely to occur.

Often a persistent problem.

Motivation level

Employees are often demotivated.

Employees are motivated and satisfied.


The burden rests only upon a few.

The burden is distributed evenly.


Since the top managerial level makes the decision, such a set-up is comparatively stable.

Conflicting decisions may lead to instability.

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FAQ (Frequently Asked Questions)

1. What do you mean by Decentralisation? Explain Decentralisation Meaning in detail.

Decentralisation is a structural set-up, wherein, the power to make a decision is delegated across all levels in an organisation. It is mostly suitable for large scale companies and follows a free and open flow of communication pattern.

2. What are the Advantages and Disadvantages of Decentralisation?

Advantages – Facilitates diversification promotes growth and motivation and helps expansion.

Disadvantages – Lack of coordination and exposure to internal and external conflict.