Decentralisation is not an absolute term. So, the extent or degree of decentralisation varies from concern to concern. The degree of decentralisation in an enterprise is determined by a number of factors. They are:
- The size of the organisation determines the extent of decentralisation. As the size of the organisation increases. it becomes necessary to decentralise and divide the organisation into a number of semi-autonomous units. In fact the larger is the size of the organisation) the greater is the extent of decentralisation.
- Decentralisation requires a number of able middle level managers to run the various divisions or departments of the enterprise. That means, the extent of decentralisation is determined by the availability of competent middle level managers. Where such managers are not available, decentralisation is not possible.
- The extent of decentralisation is also determined by the management philosophy (i.e., the outlook of the top management). If the top management believes in centralisation of authority, there will not be much decentralisation. On the other hand, if the top management believes in greater .autonomy and freedom to the subordinate, the extent of decentralisation will be great.
- The nature of the growth and expansion of the business also determines the degree of decentralisation. If the enterprise has growth through internal expansion, generally, there will be centralised control, and so, there may not be much decentralisation. On the other hand if the concern has growth through amalgamation or absorption, generally there will be greater decentralisation.
- The physical dispersion of operations of the enterprise also influences the extent of decentralisation. When the operations of an enterprise are widely dispersed in different territories, generally, there will be greater decentralisation for better results.
- Government policies and regulations also determine the extent of decentralisation.
- The product lines of the enterprise influence the extent of decentralisation. Where the product lines of the enterprise are quite different, decentralisation is resorted to.
- Technological changes also may create conditions favourable for decentralisation.
- The costliness and the significance of the decisions to be taken also influence the extent of decentralisation. Where the decisions to be taken involve heavy investment or cost, generally, decentralisation is not thought of. Instead, centralisation is thought of.