Delegation refers to the downward transfer of authority from a superior to a subordinate. However, decentralization refers to delegation of authority throughout all the levels of the organization. Decision making authority is shared with lower levels and is consequently placed nearest to the points of action. Importance of decentralization is wider than delegation of authority which is mere transfer of authority from a superior to a subordinate.

Decentralization is a fundamental step and its importance are as follows:
i) It develops initiative among subordinates: Decentralisation helps to promote self-reliance and confidence amongst the subordinates. A decentralisation policy helps to identify those executives who have the necessary potential to become dynamic leaders.
ii) Develops managerial talent for the future: Decentralisation gives employees a chance to prove their abilities and creates a reservoir of qualified manpower who can be considered to fill up more challenging positions through promotions.
iii) Quick decision making: In a decentralised organisation, as decisions are taken at levels which are nearest to the points of action, there is no requirement for approval from many levels, the process is much faster.
iv) Relief to top management: Decentralisation diminishes the amount of direct supervision exercised by a superior over the activities of a subordinate because they are given the freedom to act and decide within the limits set by the superior.