It has been proven time and again that centralized organizations, which utilize strict hierarchy show worse operation results than the ones with the decentralized structure. While at the dawn of capitalism centralization of management was a necessary precondition for success, in the modern world this approach tends to become dysfunctional.
Centralization Blocks Acceleration
It’s a pity that many senior executives invoke such important ideas as empowerment, engagement, leadership, teamwork, trust just to cover their outdated approach to business administration via total control. It’s like simultaneously pushing the accelerator and the brakes to the floor. Under such circumstances, the subordinates who want and can show initiative and be pro-active, are not allowed to make a move without approval from above.
The thing is, trying to implement both centralization and decentralization practices inside one organization without coming to consensus among executives can negatively affect the enterprise’s performance and eventually rip it apart.
Psychological and Accounting Facets of the Centralization Issue
Another aspect of this dilemma is of psychological nature. Many centralist managers want to have all matters in order and under control to be able to predict how things will turn out. On the other hand, they understand that providing maximum autonomy to organization’s structural elements is crucial for staff engagement and participation. Yet, the just can’t let it go being afraid to drop the reins of command and backslide of their master plan. Such lack of agility does not meet the challenges of modern ever changing and thus, hardly predictable world. Inflexible management methods often are the true reasons behind irrelevant strategic plans and, as a result, drastic underperformance in their companies.
Rigid traditional accounting systems are yet another factor, which exacerbates the state of affairs. The generally view states that centralization of different company activity areas (i.e., consolidation of support service and developing new functions) will save funds and improve efficiency. Well, that’s what all paper calculations say, right? But no accounting system will show you how centralized bureaucracy causes the loss of correlation between clients and purpose of organization’s operating activity as well as its helplessness to rapidly step up to various challenges in a dynamic environment. Very often, optimizations that are aimed at saving hundreds of thousands or even millions of dollars kill enterprise’s energy and destroy its passion. To some, these concepts may seem just nice-sounding words. But the overwhelming evidence proves that they do influence company’s performance and can bring huge revenues thanks to genius innovations, superb customer service, motivated companions and new external cooperation opportunities.
Why Decentralization Is a Go-To Option
Here are several main reasons why decentralization (the more, the better) really work and does the job exceptionally well:
- Every worker knows that the work he or she does is not some detached item or piece but an inherent part of some bigger project or system.
- You treat employees as reliable and trustworthy personalities who really care about the outcome. Due to laws of psychology, that’s exactly who they eventually become. Win-win situation.
- Several autonomous teams are capable of reacting, dealing with threats, spotting and capturing opportunities way more flexible than one huge, slow, and clumsy contingent.
- Members of decentralized teams demonstrate higher levels of commitment, passion, and energy.
- Employees are focused on satisfying the needs of clients and partners, not the company’s bureaucratic machine.
- Capable employees get more control over what they do. This brings out their inner leadership qualities.
- Due to new challenges and independent team spirit, true entrepreneurs are born out of bureaucratic gatherings.
- Getting, evaluating, and reacting to the customer feedback is easier, faster, more effective and relevant to the market.
The chaos of the modern business world, which might become a doom for hierarchical organizations, is a fruitful soil for highly agile and extraordinary performing decentralized enterprises.