When American colonists revolted against the British monarchy during the 18th Century, it was in large part because someone far away on the other side of the Atlantic made decisions about the colonies without understanding or showing concern for the circumstances of the people living there. A company with centralized management can look very similar. Senior management makes decisions without a full understanding of the realities of lower level employees. A company can get around this disconnect by decentralizing its organizational structure and pushing decisions down to the lowest possible level.
Flexibility and Speed
Decentralized companies can respond to client requests rapidly and effectively because the employees who interface with clients don’t have to go up through multiple layers of management to get approvals. For the same reason, decentralization also makes it possible to respond to market changes quickly. Sectors such as software design, marketing and product design benefit greatly from decentralization because employees can expedite production and marketing decisions to get ahead of the competition.
Collaboration and Creativity
When carried out effectively, decentralization encourages communication and collaboration between offices. Instead of running up the chain for permission, departments have to work together to make decisions. This means that problem-solving and decision-making happen in the context of many minds working the same issue. The related brain-storming and sharing of ideas stimulate creativity and often lead to solutions that no one would have thought of on his own.
Motivation and Skill Building
Employees tend to feel empowered by a decentralized structure because they have more authority at lower levels. They also gain more experience and a wider skill set than if they were simply carrying out orders from on high. The process of weighing options, negotiating decisions and tracking results helps them to prepare for future leadership roles. Involvement in the decision-making process also builds buy-in, so they have a deeper interest in helping the company increase profitability and grow.
Freeing up Senior Management
Decentralization doesn’t mean that senior management sits around drinking coffee and watching everyone else work. It means the organization’s leaders are relieved of the burden of day-to-day operational decisions so they have more time to focus on big-picture strategy. Senior executives also have time to leverage their contacts in the industry to make deals or arrangements that couldn’t happen at lower levels. In other words, they can more effectively use the skills, experience and contacts that they’re paid for.
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