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Decentralization

Decentralization

What is Decentralization?

Decentralization refers to a specific form of organizational structure where the top management delegates decision-making responsibilities and daily operations to middle and lower subordinates. The top management can thus concentrate on making major decisions with greater time abundance. Business houses often feel the requirement of decentralization to continue efficiency in their operation.

Decentralization can be understood as the orderly assignment of authority, throughout the levels of management, in an organisation. It describes the way in which power to take decisions is allocated among various levels in the organisational hierarchy. In other words, it refers to the dissemination of powers, functions and responsibility, away from the central location.

What are the types of decentralization?

There are four main types of decentralization: political, administrative, fiscal, and market decentralization.

1. Political decentralization

Political decentralization aims to give citizens or their elected representatives more power in public decision-making. Its goal is to introduce more participatory forms of governance by giving citizens, or their representatives, more influence in the formulation and implementation of health policies and plans.

Political decentralisation often requires constitutional law reform as well as changes to other laws.

2. Administrative decentralization

Administrative decentralization involves redistributing authority, responsibility and financial resources for providing public services from the national government to local units of government agencies, sub national government or semi-autonomous public authorities or corporation.

There are three major forms of administrative decentralization: deconcentration, delegation, and devolution. Each form raises different legal issues.

Deconcentration involves redistributing decision making authority and financial and management responsibilities among different levels of a national government. For example, it may involve shifting responsibilities from government officials working in the head office of a health ministry, to ministry staff working in regions, provinces or districts. Deconcentration does not usually involve any changes to existing laws. Though in some countries, changes to who may exercise a legal power have to follow a specific legal procedure.

Delegation involves a national government transferring responsibility for decision-making and administration of public functions to semi-autonomous public sector organizations such as hospital corporations. These organizations usually have separate legal status and have a great deal of discretion and autonomy around management decision-making.

Delegation usually involves extensive legal changes including passing laws to establish the new public sector organizations and specify their duties, powers, accountabilities and relationship to national government. It also may involve introducing new regulatory controls. This is because independent decision making may generate a need for state regulation to ensure that decisions made by autonomous bodies are made in line with government’s broader health policy objectives.

Devolution is where national governments devolve functions to sub national government.

In a devolved system, sub national governments often have clear and legally recognized geographical boundaries over which they exercise authority and within which they perform these functions.

Devolution may involve constitutional law reform as we as law reform to formalise the devolution of powers, roles and accountabilities.

3. Fiscal decentralization

Financial responsibility is a core component of decentralisation. If sub national governments and private organizations are to carry out decentralised functions effectively, they must have an adequate level of revenues either raised locally or transferred from the national government– as well as the authority to make decisions about expenditure.

Law changes are likely be required to give effect to the fiscal devolution, to authorise the transfer of revenue and to authorise local decision making and revenue raising.

4. Market decentralization

Market decentralisation involves shifting responsibility for health functions from the public to the private sector including businesses and non-government organizations.

Market decentralisation may involve constitutional law reform as well as the passage of new laws to:

  • allow the private sector to perform functions that had previously been performed by the government; and
  • to regulate the performance of those functions.

What are the features of decentralization?

The extent of decentralization is determined by:

i. What kind of authority is delegated?

ii. How far down in the organization it is delegated?

iii. How consistently it is delegated?

Since decentralization refers to the delegation of authority at the lowest levels, subordinate managers must be allowed to exercise authority and to make decisions of their own.

Decentralization reflects attitude and philosophy of the management. It has to select what types of decisions must be delegated to lower levels of management and what to be reserved at the top.

Decentralization, to be effective and fruitful, requires development of managerial talents to shoulder the responsibilities entrusted to them. Hence, people must be selected and trained.

Adequate controls must be established to ensure performance of the work delegated. Decentralization does not mean abdication of responsibility.

What are the advantages of decentralization?

It is a philosophy, which refers to the selective diffusion of authority, which advocates the belief that the workforce is capable, competent and resourceful.

  1. Quick decision making: Decision making becomes quicker and better at the same time, by pushing down the power to make a decision to the operational level, which is nearest to the situation.
  2. Executive development: It encourages self-sufficiency and confidence amongst subordinates, as when the authority is delegated to lower levels, they have to rely on their judgement. By such delegation, the executives are constantly challenged, and they have to find solutions, for the problems they face, in the day to day operations.
  3. Development of managerial skills: In a decentralised structure, subordinates get an opportunity to prove their abilities and management also get a pool of competent manpower, which can be placed at more challenging and responsibility-prone situations, by way of promotions.
  4. Relieves top management: It reduces the extent of direct supervision over subordinates by the supervisor, as they are given the liberty to decide and act accordingly, within limits set by the superior. As a result, the top management gets more time to take policy decisions.
  5. Facilitates growth: It confers greater independence to the lower management levels, along with the heads of departments, divisions, units, etc., as it let them perform functions in the way that is most appropriate for their department or division. It propagates a sense of competition among various departments, to outperform others. This ultimately results in the increased production level and generates more return to the enterprise.
  6. Better control: The performance of each level can be measured, and the departments are also held accountable separately for their results. The extent to which organisation goals are achieved and the contribution of each department is determined.
  7. Effective communication: The communication system of the organisation becomes more effective, through decentralisation. It also builds a strong relationship between superior and subordinates.

Decentralization lessens the burden of top-level management and gives actual work experiences to some middle and lower level executives, which improves their morale.