The appropriate degree of decentralization in an organization depends on the unique situation of that organization. Some specific questions managers can ask to determine the amount of decentralization appropriate for a situation are as follows:

1. What is the present size of the organization? As noted earlier, the larger the organization, the greater the likelihood that decentralization will be advantageous. As an organization increases in size, managers have to assume increasing responsibility and different types of tasks. Delegation is typically an effective means of helping them manage this increased workload.

   In some cases, however, top management will conclude that the organization is actually too large and decentralized. One indication an organization is too large is that labor costs are high relative to other organizational expenses. In this instance, increased centralization of certain organizational activities could reduce the need for some workers and thereby lower labor costs to a more acceptable level.⁴⁰

2. Where are the organization’s customers located? As a general rule, the more physically separated the organization’s customers are, the more viable a significant amount of decentralization is. Decentralization places appropriate management resources close to customers and thereby makes quick customer service possible. For example, by decentralizing its decision making in different continents, Samsonite gives its managers the authority to concentrate on the demands of local customers in each of the different countries in which it sells its luggage products.⁴²

3. How homogeneous is the organization’s product line? Generally, as the product line becomes more heterogeneous, or diversified, the appropriateness of decentralization increases. Different kinds of decisions, talents, and resources are needed to manufacture different products.

   Johnson & Johnson, the world’s largest health-care company, consists of more than 250 companies in 57 countries. With such a comprehensive array of products and services, the decision to decentralize authority enables Johnson & Johnson to recruit high-performing individuals whose leadership and expertise drive the company’s business.⁴³ By separating organizational resources by product and keeping pertinent decision making close to the manufacturing process, decentralization usually minimizes the confusion that can result from diversification.⁴⁴

4. Where are organizational suppliers? The location of the raw materials needed to manufacture the organization’s products is another important consideration. Time lost and high transportation costs associated with shipping raw materials over great distances from supplier to manufacturer could signal the need to decentralize certain functions.

   For example, the wood necessary to manufacture a certain type of bedroom set may be available only from tree growers in certain northern states. If the bedroom set in question is an important product line for a furniture company and if the costs of transporting the lumber are substantial, a decision to decentralize may be a sound one. The effect of this decision would probably be the need to build a plant that produces only bedroom sets in a northern state, close to where the necessary wood is readily available. The advantages of such a costly decision, of course, would accrue to the organization only over the long term.

5. Are quick decisions needed in the organization? If speedy decision making is essential, a considerable amount of decentralization is probably in order. Decentralization cuts red tape and allows the subordinate to whom authority has been delegated to make on-the-spot decisions when necessary. It goes without saying that this delegation is advisable only if the potential delegatees have the ability to make sound decisions. If they don’t, faster decision making will result in no advantage for the organization but quite the contrary: The organization may find itself saddled with the effects of unsound decisions.

6. Is creativity a desirable feature of the organization? If creativity is desirable, then some decentralization is advisable, for decentralization allows delegatees the freedom to find better ways of doing things. The mere existence of this freedom encourages the incorporation of new and more creative techniques within the task process.⁴⁵

Beneficial decentralization is decentralization that is advantageous for the organization in which it is being implemented; detrimental decentralization is disadvantageous for the organization. To see how an organization should be decentralized, it is worthwhile to study a classic example of an organization that achieved beneficial decentralization: Massey-Ferguson.⁴⁶