Benefits-Drawbacks

What Is Debt Financing ?

Debt financing is just opposite of equity financing.(in which capital is raised by selling equity instruments to the investors). It is a process of raising fund by selling debt instruments such as bond, credit cards, debentures etc. It is a borrowing of money and should be paid back with interest. In this post we are going to discuss some major pros and cons of debt financing.

Advantages Of Debt Financing

The main advantages of debt financing can be pointed out as follows:

1. Ownership And Control

One of the main advantages of debt financing is that it does not dilute ownership and control like in equity financing. Ownership, management control remains with the company because lenders have no right to manage the company.

2. Decreased Tax Obligation

Debt is considered as expenses in business. So, interest on loan is tax deductible. So, it minimizes the tax obligation.

3. No Share Of Profit

Another benefit of debt financing is that company can enjoy entire profit because lenders cannot claim on the profit of the firm.

4. Improves Credit Rating

If a firm pays loan and interest on time, it improves the credit rating of the business, It increases the reputation and image of the company.

5. Flexibility

It is more flexible than equity funding. There are several debt instruments such as loan, debenture, bills, credit card etc. Companies can choose best debt financing option as per the nature of the business.

Disadvantages Of Debt Financing

The main drawbacks or disadvantages of debt financing are as follows:

1. Impact On Cash Flow

As we know that certain amount of loan and interest should be paid in each month until the last installment, it may negatively impact cash flow. It may hamper daily operational activities because of lack of adequate working capital.

2. Complex Process

It is difficult to raise capital with debt financing. It requires strong credit history to attract lenders. So, it is not suitable for small and new business firms.

3. Need Of Collateral

Another disadvantage of debt financing is that company may need to provide collateral (fixed assets such as land, building, machinery) etc. to secure loan. If the company fails to repay the loan lenders can acquire the assets.

4. Strict Discipline

It requires strict discipline to repay the loan. If a firm fails to repay the loan on time it negativels affects the credit rating and image of the firm.

Also Read

Advantages and disadvantages of equity financing

5. Not Suitable

Debt financing is not suitable for the business having inconsistent cash flow because it make difficult to pay the loan and interest regularly.

Pros And Cons Of Debt Financing In Short

Pros

- Firms retain ownership and control

- It increases the credit rating of the firm 

- Firm can enjoy 100% profit

- It decreases the tax liability

- Liability is over after paying the loan

Cons

- It is risky and complicated than equity financing

- It may impact cash flow of the firm

- Firms may have to pay high rate of interest

- It is not suitable for small business

- It requires collateral to get loan

What Is Equity Financing ?

Equity financing (also called equity funding) is a process of raising capital by selling equity instruments like ordinary shares, preference shares etc. Companies issue share to investors to raise money for business. It is effective tool that helps to meet short-term or long-term obligation of the firm.

Advantages Of Equity Financing

The main advantages of equity funding can be pointed out as follows:

1. Less Risky

Equity financing is less risky method of financing than debt because firms do not require to repay loan and interest on the raised capital.

2. No Additional Burden

Another benefit of equity financing is that it does not suffer the company with financial burden like monthly repayment of loan and interest.

3. Opportunity To Grow

As we know that firms do not have to repay loan, so firms can invest more money to expand business. Therefore, it provides the opportunity to grow.

4. Raising More Fund

Equity financing can raise more capital than borrowing. So, it is more favorable option than debt financing.

5. Attract Investors

It can increase credibility and image of the company if the raised fund is invested properly. It helps to attract more investors and partners in the future.

Disadvantages Of Equity Financing

The main disadvantages of equity financing can be highlighted as follows:

1. Sharing Profit

One of the major drawbacks of equity finance is that company founders cannot enjoy 100 % profit because it should be share with the shareholders.

2. Costly Method

Equity financing is costlier than borrowing because of higher risk and no tax shield.

3. Sharing Ownership And Control

Another disadvantage of equity financing is that company should share ownership with the shareholders. So, it limits the power and control of founders.

Also Read

Advantages and disadvantages of debt financing

4. Possibility Of Conflict

Because of shared ownership, control and power there exists a possibility of conflict between investors and owners of the company.

Pros And Cons Of Equity Financing In Short

Pros

- It is less riskier than debt financing

- It avoids the financial burden of the firm

- It provides expansion and growth opportunity

- It can raise more capital than borrowing

- It lowers the credit problems

Cons

- It splits the ownership and profit

- It is complex and costly method of raising capital

- It may create conflict between shareholders and owners

- It lacks tax shield

- It is time consuming process

What Is ChatGPT ?

ChatGPT ( Chat Generative Pre-trained Transformer) is an AI chatbot build by using machine learning technology. This artificial intelligence tool is designed and developed by an American research organization called Open AI . The main feature of ChatGPT is that it generates human-like responses because it is trained on vast amount of data. It can perform various tasks such as writing texts, generating codes, composing lyrics, solving complex mathematical problems, creating content etc.

Benefits Or Advantages Of ChatGPT

The main advantages of using ChatGPT can be highlighted as follows:

1. Saving Of Time And Effort

One of the main features of ChatGPT is that it can generate quick response that helps the users to complete complex tasks or problems within few seconds. Therefore, it saves time and effort.

2. Cost-effective Tool

ChatGPT minimizes the need of manual labor to perform several tasks. It helps the companies to save their resources by automating the tasks that helps to save costs.

3. Eliminates Tedious Manual Process

Another advantages of using ChatGPT is that it eliminates tedious manual jobs and process. It can perform complex tasks quickly with high level of accuracy. It also increases the efficiency  minimizing the human interventions.

4. 24/7 Availability

ChatGPT is available at any time and works 24 x 7 endlessly without any breaks. So, it is a convenient tool that helps people to perform their tasks  when needed.

5. Promotes Innovation

It can be used in different fields such as business, marketing, education, healthcare, banking etc. to improve efficiency and productivity. It helps the companies to analyze vast amount of data to improve the performance and to create new ideas. So, it promotes innovation.

6. Wide Range Of Topic

ChatGPT can be used for various purposes such as content writing, coding, solving mathematical problems, making lyrics, writing resumes etc. So, users can get information on wide range of topics.

7. Helps In Fraud Detection

It helps the organization to detect fraud by analyzing the text data. Therefore, it is useful to prevent scams, phishing and fraudulent in the company.

8. Personalized Response

ChatGPT is a powerful tool that provides personalized responses to it users. Different users get unique solutions in a different way. 

Drawbacks Or Disadvantages Of ChatGPT

The main disadvantages of ChatGPT can be described as follows:

1. Limited Knowledge

ChatGPT is in initial stage and has limited knowledge and data about latest events and latest technology. So, it may lack accuracy and reliability in some cases.

2. Not Able To Handle All Tasks

As we know that it is trained on large volume of text data, ChatGPT is capable to generate responses on the basis of those data only. It cannot be used for tasks that require logical abilities such as decision making or reasoning capabilities.

3. Possibility Of Misuse

Another notable disadvantage of ChatGPT is that users may misuse this tool for cheating, scamming, phising, and spreading rumors and false information.

4. It Lacks Creativity

It provides response on the basis of data that are used to train this tool. It lacks creativity and cannot generate new and fresh ideas.

5. May Hamper Creativity

Although it helps people to get required solutions to their problems, it may hamper their creativity, thinking capability and hard working habit. Therefore, it may make people lazy.

6. Unemployment Problem

ChatGPT may replace human interventions by automating tasks. Companies try to replace individuals with this tool that may increase the rate of unemployment in the near future.

7. Lacks Emotional Intelligence

As we know that this tool provides responses on the basis of pre-fed-data, it fails to perceive emotions. So, it is not able to understand users emotions and feelings.

Pros And Cons Of ChatGPT In Short

Pros:

- It saves time, money and effort

- It increases the efficiency and productivity

- Can be used at anytime without any difficulty

- It provides wide range of topics

- It promotes innovation

Cons:

- It may lack reliability and accuracy

- It may hamper people's creativity and thinking habit

- May create unemployment problem

- There is a high chance of misuse  

What Is First In First Out (FIFO) Method ?

FIFO (First In First Out) is a method of inventory valuation in which first batch of materials (oldest stock) are issued or sold first and new lot (latest purchase) remains in the stock. This method is just opposite of LIFO (last in first out) method. In this method, value of the closing stock is determined on the basis of latest purchase price.

Benefits Or Advantages Of First In First Out (FIFO) Method

The main advantages of FIFO method of inventory valuation can be pointed out as follows:

1. Simple And Easy Method

FIFO is simple to operate and easy to understand. It does not required special mathematical or accounting knowledge to understand this method.

2. Widely Used Technique

It is the most popular , widely used and GAAP approved method of inventory valuation. Big companies prefer this method because it provides more accurate result than other methods. 

3. Realistic Approach

FIFO is more realistic than LIFO method because in this method, value of stock represents the current market price.

4. Prevents Wastage And Obsolescence

In FIFO method, materials are issued on a chronological order, it means older items are sold first and newly purchased goods are stored. It helps to prevent wastage and obsolescence of materials.

5. Suitable For

It is suitable for perishable products having shorter life which cannot be stored for a long period.

6. No Manipulation Of Income

It is difficult to manipulate income like in LIFO because materials are sold at the old cost.

Drawbacks Or Disadvantages Of First In First Out (FIFO) Method

Major disadvantages Of FIFO can be pointed out as follows:

1. Overestimation Of Income

One of the main weak point of this system is that it overestimates income during inflation. It shows higher profit because of higher selling price and lower cost of production. 

2. High Tax Liability

When the price of the product rises, it shows more profit because of less production costs which leads to increase in the tax liability of the firm.

    Also Read:

Advantages And Disadvantages Of LIFO

Difference Between LIFO And FIFO

3. Cost Fluctuations

In this method, production costs fluctuate as per the fluctuations in the price of materials.

4. Difficult To Record

Because of frequent fluctuation in the price of materials, it is difficult to maintain record properly. It makes clerical work complex and increases the chance of errors.

5. Not Suitable

FIFO method is not appropriate if many lots of materials are acquired at different price in the same period.

Pros And Cons Of FIFO In Short

Pros:

- It is simple to maintain and easy to understand

- Provides more realistic results than LIFO

- It is most commonly used method

- It is approved By GAAP 

- It discourages the manipulation of figures

Cons:

- It overestimates the income of the firm

- It increases the tax liability 

- High chance of clerical errors

- It understates the cost of production

- Matching of current costs and current revenue is not possible

What Is Last In First Out (LIFO) Method ?

Inventory valuation method in which most recently purchased, acquired or produced materials are issued or sold first is called last in first out (LIFO) method. In this method of recording inventory, last batch of materials are issued first and previous batch remains on the stock. In LIFO, value of closing stock is determined on the basis of previous price which is generally lower than the latest price.

Benefits Of Advantages Of LIFO Method

The main advantages of LIFO method of recording inventory can be highlighted as follows:

1. Tax Advantage

This method shows higher cost of good sold because of the rising price of materials. Higher cost of goods sold lowers taxable liability of the company. So, firm can enjoy the benefit of tax reduction.

2. Better Measurement Of Cost

In LIFO, recent costs and current revenue are matched which prevents understating the cost of good sold and overstating of profit. 

3. Suitability

This method is appropriate when the price of the products is rising because it reduces taxable income and improves cash flow of the business.

4. Realistic Result

LIFO method shows more accurate and realistic result (profit or loss) than first in first out (FIFO) method of inventory. 

Drawbacks Or Disadvantages Of LIFO Method

Some of the major disadvantages Of LIFO are as follows:

1. Complex Method

Last in first out (LIFO) method is more complicated, complex and consumes more clerical work than FIFO. It is difficult to compare the cost of similar jobs because of the price variation.

2. Not Suitable

It is not suitable for perishable goods having very short life. Because they cannot be stored or preserved for long period.

3. Understatement Of Inventory

In this method, value of inventory is computed on the basis of oldest cost. So, it understatements the value of materials on the stock.

4. Manipulation Of Income

There exists a chance of income manipulation by changing purchase pattern.

    Also Read:

Advantages And Disadvantages Of FIFO

Difference Between LIFO And FIFO

5. Not Popular

LIFO is least preferred method of inventory. It is not popular and widely used like other methods because of its complications at the time of price fluctuation. 

Pros And Cons Of LIFO In Short

Pros:

- It provides tax benefit

- It shows more realistic result

- It is appropriate when the prices of the products are rising

- It discourages understating of cost of good sold 

Cons:

- It is more complicated than other methods

- It is not suitable for perishable goods

- Possibility of manipulation of income

- It is not preferred by tax authorities

- It understates the value of stock

What Is Downward Communication ?

It is just opposite of upward communication (where message flows from lower to top level of management). Downward communication is a type of communication process in which information, messages, orders and instructions are flow or transmitted vertically down from top management to bottom by following proper chain of command (From top management to middle level management to lower level management to subordinates) in the organization. This communication is helpful in maintaining better chain of command and discipline in the company.

Benefits Or Advantages Of Downward Communication

The main advantages of downward communication can be highlighted as follows:

1. Easy To Assign Duties And Responsibilities

In downward communication, instructions and messages directly comes from the top authority which is helpful to assign jobs and delegate authority and responsibility to different levels of management.

2. Maintenance Of Better Discipline

Another advantage of downward communication is that it follows strict chain of command in the workstation and all members should follow the instructions and orders received from top management. So, it helps to maintain proper discipline in the organization.

3. Increased Efficiency

Subordinates get clear instructions, suggestions and guidance from higher management. It helps to increase efficiency and performance at work which helps to achieve organizational goals effectively.

4. Avoids By-passing

As we know that upward communication system suffers from the problem of by-passing of hierarchy due to the lack of proper chain of command. But downward communication minimizes this risk because there is formal chain of command in the organization.

5. Effective Process

Management can clearly explain organizational goals, policies and procedures more clearly through downward communication. Instructions and orders can be issued more effectively than other forms of communication methods. Therefore, it is more effective process of communication while comparing to others.

Drawbacks Or Disadvantages Of Downward Communication

The main disadvantages of downward communication can be described as follows:

1. It Lacks Flexibility

Downward communication is a one way process in which information flows from top to bottom only. Employees cannot give suggestions and share their ideas with upper level managers. Therefore, this process lacks flexibility.

2. Time Consuming Process

Another drawback of downward communication is that it is time consuming process. Information, messages, orders and instructions pass through different levels of management before reaching to the subordinates. Therefore, operational activities may be hampered because of the delay in transmission of information. 

        Also Read: 

Advantages And Disadvantages Of Horizontal Communication

Advantages And Disadvantages Of Upward Communication

3. Low Morale And Motivation

Because of its directive nature, it discourages employee participation and dos not allow them to provide suggestions and views to the management. It may create frustration, decrease motivation and morale of the subordinates.

Pros And Cons Of Downward Communication In Short

Pros:

- It ensures proper delegation of authority, responsibilities and assignment of jobs

- It improves efficiency and boosts employee performance

- It discourages by-passing of hierarchy in the organization

- It gives clear explanation of plans and procedures of the company

- Management can monitor and control employees' activities

- Better discipline can be maintained because of better supervision and control.

Cons:

- It is a time consuming process

- It does not promote subordinate participation in the decision making process

- There is a chance of employee frustration, decreased morale and motivation

- There is no flexibility in this process of communication

- It lacks employees enthusiasm

- There may be a possibility of distortion of message because of long transmission process

What Is Upward Communication ?

It is a type of communication in  which information or message flows vertically from lower level subordinates to upper level management. Upward communication encourages lower level employees to provide suggestions and ideas so the top management can make proper plan and sound decisions. It is most commonly used in modern organizations because it overcomes the limitations of traditional  communication system.

Benefits Or Advantages Of Upward Communication

The main advantages of upward communication process can be described as follows:

1. Better Relations Between Superiors And Subordinates

In upward communication, subordinates are allowed to share their feeling, problems and opinions with superiors. It helps to build trust and sense of harmony between management and employees . So, this communication process helps to make good superior subordinate relations in the organization.

2. High Employee Morale

Another advantages of upward communication is that it helps to increase motivation and morale of subordinates because it encourages the subordinates to give suggestions and views to the management. It  promotes employee participation which makes them feel valued. Therefore, it improves motivation , morale and job satisfaction.

3. Better Decision Making

Top level management get important data and information from lower level management and subordinates through this communication process. So, it helps the management to make sound and perfect decisions.

4. Formulation Of Plans And Policies

As we know that top management collects useful data, information, suggestions and ideas from lower level management and subordinates through upward communication. These information are very helpful to develop future plans and policies of the company.

5. Better Working Environment

Because of two way communication and employee participation and better superior subordinate relation, it creates better working environment in the organization. Good working environment increases efficiency and performance of the employees which helps to increase productivity as well as profitability of the organization.

Drawbacks Or Disadvantages Of Upward Communication

Some of the notable disadvantages of upward communication process can be described as follows:

1. Possibility Of Manipulation Of Data

Subordinates may manipulate data and provide edited information to hide their mistakes. In this situation top management get wrong information which may lead to wrong decisions.

2. Discouragement

Sometimes subordinates may not get positive response from their superiors. It may discourage them and they may loss confidence.

Some autocratic or traditional types of leaders do not want to take suggestions and ideas from their subordinates. In this situation, employees may not want to communicate with their managers because of the fear of negative reaction.

        Also Read: 

Advantages And Disadvantages Of Downward Communication

Advantages And Disadvantages Of Horizontal Communication

4. Difficult To Maintain Discipline

Another disadvantage of upward communication is that it is very difficult to maintain better supervision and discipline. Because of the open communication, more freedom to subordinates and friendly behavior of managers, it may be difficult to maintain proper chain of command and discipline in the organization.

5. Slow Movement

In this communication system, information flows slowly from lower level to upper level of management. Therefore, it may not be suitable for the top management to make quick decisions at the time of emergency.

Pros And Cons Of Upward Communication In Short

Pros:

- It provides valuable information and suggestions to the management.

- It helps to make good management-subordinate relationship

- It is useful for the development of plans and policies

- It increases employees' motivation and morale

- It helps to create good working environment

- It facilitates sound decision making

- It promotes sense of cooperation and harmony in the workstation

Cons:

- There is very slow movement of information

- Subordinates may manipulate the actual data and provide false information to the management

- There may be a lack of proper discipline in the organization

- Managers may neglect subordinates' suggestions and opinions

- Employees may hesitate to communicate with their bosses because of the fear of negative response

- Subordinates may by-pass their immediate superiors

 What Is Decentralization ?

Decentralization is a type of organization set up in which authority and power is delegated to the middle and lower level management. It is just opposite of centralization where decision making authority is reserved in the top management. In this structure departmental heads, branch managers, section officers etc. can make routine decisions without consulting higher level managers. It is suitable for large sized and complex types of organizations because single management or authority cannot manage entire organizational activities.

Benefits Or Advantages Of Decentralization

Some of the notable advantages of decentralization can be expressed as follows:

1. Decreases The Workload Of Top Authorities

One of the main advantages of decentralization  is that it reduces the work burden of  top management because some of the managerial responsibilities, authority and power are delegated to the lower level authorities. So, it helps to minimize the load of top authorities.

2. Quick And Better Decision Making

In this type of organizational setup, decision making authority is delegated to the departmental heads who are closer to the level of operation. It helps to make quick and wise decisions. Prompt and better decision making helps to cope with the situation and solve the problems wisely and quickly. 

3. Facilitates Specialization

Highly qualified, skilled, experienced and specialist personnel are appointed as middle and lower level managers to manage and control different branches, departments and units. So, decentralization brings specialization in the organization.

4. Suitable For

This organizational setup is appropriate for the following types of organizations:

* Having large volume of production

* Organizations with several functional units and departments

* Organizations having large number of staffs

* Large sized organizations with adequate resources

5. Increased Motivation And Satisfaction

It gives freedom to the middle and lower level managers and subordinates to make decisions. It helps to enhance skills, efficiency and potential of the subordinates. It provides the opportunity for growth and development. Therefore, decentralization increases motivation, morale and job satisfaction.

6. Increased Productivity

Because of specialization, increased motivation and high employee morale, it helps to improve employee performance and operational efficiency. Better performance and high efficiency leads to increase in the productivity of the organization.

7. Better Supervision And Control

In decentralization, subordinates and supervised and controlled by the concern managers or departmental heads. Lower level managers have full authority to monitor and control their immediate subordinates. Therefore, it is possible to maintain better discipline and control in the decentralized organization.

Drawbacks Or Disadvantages Of Decentralization

Some of the major disadvantages of decentralization can be expressed as follows:

1. Complex And Expensive

This structure is more complex than centralization because of different branches, departments and different levels of management. It requires more capital and operational costs to manage decentralized organizations because of more operational activities, more employees and complex design. So, it is complex and expensive organizational setup.

      Also Read: 

Advantages And Disadvantages Of Centralization

Difference Between Centralization And Decentralization

2. Not Suitable

Decentralization is not appropriate for following types of organizations:

* Small organizations having limited volume of production

* Organization having less numbers of employees

* Organizations with less functional units

* Not suitable for specialized services

As we know that decision making power is delegated to the middle and lower level authorities in decentralization. If lower level managers are not capable of making wise decision, it may increase the risk of mismanagement and organization may have to bear huge loss.

4. Lack Of Coordination

Another disadvantage of decentralization is poor coordination. It is very difficult to maintain proper coordination between different functional areas and different levels of management because of its complexity. Due to the lack of coordination, there is a chance of conflict, misunderstanding and duplication of effort.

5. Communication Problem

Because of the coordination problem, it is difficult to establish better communication among departments, managers and subordinates in the organization. Lack of communication may create confusion in the workplace. Poor communication may hamper the efficiency and productivity of the firm.

Pros And Cons Of Decentralization In Short

Pros:

- It minimizes the burden of the top executives because responsibilities and roles are dispersed

- It promotes specialization, growth and diversification

- It is appropriate of large organizations with more resources and various operations

- It improves employee motivation and morale

- It facilitates prompt decision making

- It ensures the maintenance of better supervision, discipline and control

Cons:

- It is complex and costly structure

- It is not suitable for small firms with limited activities and resources

- It lacks proper coordination

- There is a possibility of conflict, misunderstanding and communication problem in the organization

- It lacks uniformity

 What Is Centralization ?

Centralization is a traditional type of organization set up in which power and authority such as decision making, planning, policy making, supervision, direction, resource allocation etc. are exercised by the higher level management. It is commonly practiced by small organizations having fewer resources, finance and employees. Managerial activities are handled by superiors and other members (lower level managers and subordinates) are responsible for operating activities.     

Benefits Or Advantages Of Centralization

Some of the notable advantages or centralization are as follows:

1. Simple Structure

This organizational structure is easy to set up and understand. Roles and responsibilities of each member is clearly defined and the subordinates are accountable for only one boss which helps to eliminate confusion, misunderstanding and duplication of work.

2. Cost Efficient

Centralized organizations requires less expenses, less resources and fewer number of employees because of single authority. Therefore, centralization is more cost effective than decentralization.

3. Suitable For

Centralization is suitable for the following conditions:

* It suits for small firms having less operational activities and fewer number of employees.

* It is suitable for those companies which cannot invest more capital and resources

* When subordinates are incompetent and require close supervision, direction and supervision.

4. Quick Decisions

Another advantage of centralization is that it allows quick decision making because of single authority and reservation of power in the top management. Managers can make decisions without consulting other members in the organization. Quick decisions are very useful in the time of crisis and emergencies.

5. Secrecy

Top level managers do not share official matters with subordinates in centralized organizations. So, internal and private matters can be kept confidential. Therefore, centralization ensures proper secrecy and privacy.

6. Better Quality Of Work

Because of clear chain of command, standardized system and better supervision in the workplace, employees' performance and efficiency will be improved. Improved performance leads to improve in the quality of work and productivity of the firm. 

7. Proper Control

As we know that centralization is exercised by small firms having less activities and fewer number of employees. So, it is easier for the management to maintain better control and discipline in the organization. 

Drawbacks Or Disadvantages Of Centralization

Disadvantages or constraints of centralization can be described as follows:

1. Over Burden To The Managers

In centralized organization structure, power and responsibilities are given to top level managers. So, managers have to handle entire organizational activities which may lead to overburden and they cannot give sufficient time for other important functions such as policy making, business expansion etc.

2. Not Suitable

Centralization is not appropriate for large organizations having various activities and more employees. It is also not suitable if the subordinates are skilled, educated and experienced because they do not need more guidance and instructions.

      Also Read: 

Advantages And Disadvantages Of Decentralization

Difference Between Centralization And Decentralization

3. Lack Of Specialization

Because of the sole authority and concentration of power in the center, it discourages specialization in the organization. Lack of specialization may lead to decrease in the performance and productivity of the firm.

Due to the lack of specialization, there is no scope of growth and development opportunity for the employees. It may decrease the motivation and morale of subordinates. Decreased morale may lead to decrease in job satisfaction and increase the rate of employee turnover.

5. Possibility Of Dictatorship 

Because of the bureaucratic management and concentration of power, there is a high chance of misuse of power and dictatorship in centralized organizations.

6. Lower Productivity

Due to the lack of specialization and strict control, employees may be dissatisfied. Employee dissatisfaction negatively affect their performance which leads to decrease in the productivity and profitability.

Pros And Cons Of Centralization In Short

Pros:

- It is simple and cost effective organizational structure

- It is suitable for small firms which cannot afford more investment

- It allows prompt decisions at the time of emergency

- It ensure strict secrecy and privacy 

- It ensures better quality of work because of proper supervision, monitoring and control

- There is a clear chain of command 

Cons:

- It increases the workload of the superiors

- It lacks specialization and division of work in the workstation

- Managers may misuse their power

- Employees' morale may be decreases due to the dissatisfaction

- There is no scope for growth and career development

- It is not suitable for large scaled organizations

 What Is Laissez Faire Leadership Style ?

It is just opposite of authoritarian leadership style (where authority and power is exercised by the leader only). In laissez faire leadership style, authority is delegated to the employees and they are free to set goals and make decisions. Superiors trust their subordinates and do not interfere in their works. It encourages the employees to explore their knowledge , skills and capabilities in the organization.

Benefits Or Advantages Of Laissez Faire Leadership

The main advantages of laissez faire leadership style can be pointed out as follows:

1. Delegation Of Authority

One of the main benefits of laissez faire leadership is that authority and power is delegated to the members in the organization. Delegation of authority promotes specialization which helps to improve the performance and efficiency in the workplace.

2. Increased Motivation And Job Satisfaction

This leadership style provides opportunity for the subordinates to explore their skills and abilities. It also helps to increase creativity and develop decision making power. Therefore, employees are positively motivated which leads to increase in the job satisfaction.

3. Quick Decisions

As we know that subordinates have the authority to set their goals and make decisions to achieve those goals, it facilitates prompt decisions because they do not need to consult with their leaders to make any decision.

4. Proper Use Of Employees Potential

Another advantage of this leadership is that in ensures maximum utilization employees' potential in the workplace. Potentiality (skills, abilities, capabilities and creativity) of the subordinates are utilized properly which helps to obtain better output.

5. Development And Growth

Due to the limited role of the leader, subordinates have the opportunity to shine their skills, knowledge and performance. It is helpful in personal growth and career development.

6. Promotes Innovation

In this system, subordinates may find out shortcut methods and techniques to solve the problems. So, laissez faire leadership promotes innovations and new ideas in the organization.

7. Lower Employee Turnover

Because of positive motivation, possibility of growth and development, learning opportunity and better working environment, morale of the employees is increased. Increased morale and motivation decreases the rate of staff turnover.

The main disadvantages of laissez faire leadership can be pointed out as follows:

1. Not Suitable

This management system works properly if there are highly educated, skilled and specialist subordinates in the organization. It is not suitable for unskilled and inexperienced members because they cannot perform their tasks without proper guidance and supervision.

         Also Read: 

Advantages And Disadvantages Of Autocratic Leadership

Advantages And Disadvantages Of Democratic Leadership

2. It Lacks Privacy

All the internal matters of the organization are shared with the employees because of the openness of this leadership style. So, confidential matters may be leaked by the subordinates. Therefore, it is almost impossible to maintain secrecy and privacy. 

3. Lacks Supervision And Control

Another notable disadvantages of laissez faire leadership is that it lacks proper supervision, monitoring and controlling because of the freedom given to the employees. Therefore, it is difficult to maintain discipline which may reduce the performance and the output.

4. Lack Of Accountability

Because of the lack of clearly defined roles and responsibilities of superiors and subordinates, it may create confusion and misunderstanding in the organization. It will be difficult for the top level management to decide whom to make responsible and accountable.

5. Weakens  Leader's Role

Laissez faire leadership dilutes the role of leaders. Therefore, leaders cannot guide and instruct his/her subordinates properly. Also employee may ignore their superiors because of their weak position.

Pros And Cons Of Laissez Faire Leadership In Short

Pros:

- It encourages decentralization and specialization

- It increases the morale of the subordinates

- It facilitates personal growth and development opportunity

- It is very suitable for competent employees

- It encourages creativity and innovation

- It facilitates quick decisions

Cons:

- Because of the lack of secrecy, official matters may be leaked

- It dilutes the roles and importance of managers

- This system does not suits for unskilled, incompetent and inexperience subordinates

- There is a possibility of misunderstanding, confusion and conflict if the roles are not defined properly

- It lacks proper discipline in the workplace

- It lacks proper supervision and monitoring