Centralize or Decentralize? Want the Right Answer?

One of the things I am often asked by young leaders is should I centralize or decentralize? What is the right answer?

Here is the secret. Do not spread it widely: this is the wrong question.

Centralization and decentralization are each legitimate ways of organizing an entity or functions within an entity. The fact that many organizations go back and forth amongst these two options over Time — or even how the two options co-exist within an organization for different functions across Space — speaks to how the concepts provide both utility and frustration.

“Can you believe it? This organization disempowers their employees by centralizing the purchase of pencils (!!!)”.

“Can you believe it? This organization wastes resources by decentralizing the purchases of pencils (!!!)”.

There are some things that are more intrinsically amenable to centralization, and others that are more intrinsically amenable to decentralization. Those are easy, because they largely stay the same over time in organizations.

But what about the ones that bounce back and forth between centralization and decentralization? It is because, as above, people are asking the wrong question. Not whither centralization or decentralization, but how and why centralization or decentralization?

What are you trying to maximize when you are making this decision?Efficiency? Team engagement? Moral? Rapid service? Customized service? Brand command?

What are you trying to minimize when you are making this decision? Mistakes? Variations? Costs?

Deciding what to centralize/decentralize should always be asked relative to objectives. Even if you “don’t ask”, you are making a value statement by choosing one of these options in the eyes of your customers, stakeholders, or employees.

Generally speaking, centralization works well for the routine. Centralization works well with mechanized tasks. It also works well for non-routine if — and this is a huge if — employees have near real-time access to a decision-maker who can decide or override when centralized mechanization meets an anomalous event.

Generally speaking, decentralization works well for the non-routine. But there are two huge ifs. First, the decentralized actors must all be rowing in the same direction, consistent with the core mission of the organization they work within. Second, decentralized actors must respect the obligations that come with having autonomy within a larger structure. Autonomy in personal life is something we are entitled to. Autonomy within structures, however, demands undertaking obligations to exercise that autonomy responsibly for a broader purpose.

So don’t think of centralization or decentralization as inherently good or inherently bad. Both are legitimate ways of organizing activities or organizations. They become good or bad only relative to what they are asked to do.

Ask the right question ….