In a centralized business, each department forms part of a division and each division reports to the headquarters.
In a decentralized business, work is organized around profit centers. You can have a central office that provides administrative and support services, but each profit center is its own entity with its own set of rules and its own culture.
I’ve worked in both kinds of environments and just about everything in between. In the 30 years I’ve been in business, I have probably restructured things — moving from centralized to decentralized or the reverse — at least a hundred times. With AGP, my main client, I’ve participated in at least three major restructurings in the past 10 years.
And what have I concluded? For one thing, neither system is “the answer.”
When you are having problems that are common with a decentralized situation (e.g., communication breakdowns, negative competition between profit centers, etc.), you yearn for the order and deliberateness of centralization.
When you are involved in a centralized structure and deal with problems typical of that system (e.g., incredible bottlenecks, bureaucratic slowdowns, politicking, etc.), you dream about the fast-moving, freewheeling freedom of a decentralized environment.
Ron Ashkenas, in “The Boundaryless Organization,” has something interesting to say about this. He argues that way too much management time is spent figuring out the centralize/decentralize dilemma, because “executives are trained to think of a business as a mechanical thing and problems in terms of structures.”
In other words, when something is going wrong, you figure that the problem is one of structure (how people report to one another) rather than process (how information gets moved around).
Ashkenas, like Jack Welch, argues for a more “boundaryless” approach. Forget about what everyone else is supposed to do. Instead, consider everyone’s capabilities and then allow the problem to be solved by anyone who can help in an organic, unstructured way.
This is certainly good advice. I’d add the following thoughts of my own:
* The most important factor in determining structure should be the psychology of the person on top. You can’t make a left-brain guy good at decentralized chaos, so don’t try. Neither should you assume that replacing a guy who has a loose, creative style with someone who employs a button-down, power strategy will work. Let the culture evolve naturally — and if it works, respect it.
* Don’t be afraid to change. The truth is that all organizations exist somewhere between the polar extremes — and that’s a perfectly good thing.