The traditional structure of many businesses is to centralize authority in the hands of a few people, typically a president, CEO, board of directors or senior-level executives. In this type of organization, power is concentrated with the leadership, and rank-and-file workers have little to no say in how things are handled on a daily basis. However, in recent years, there's been a push toward decentralized organizations, in which mid- and low-level managers are given more authority in making decisions, and staff employees feel more empowered because their ideas are factored into the day-to-day operations. As a business owner, it's important to understand the benefits and drawbacks of a decentralized organization.
Decentralized Organization Elements
In a decentralized organization, you empower middle and low-level managers to make decisions that affect productivity, efficiency and performance standards. Instead of handing down decisions from the top and expecting your managers to implement those decisions, you communicate your vision and expectations and you trust your management to figure out the most effective methods of achieving your desired goals.
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Comparison of Centralized and Decentralized Organizations
Let's say that John is a mid-level manager at XYZ Corp. He wants to make a deal with a vendor that's offering an attractive price for its services. In a centralized organization, John would have to make a request to senior management and wait for them to review the request and then approve or disapprove. The delay in approval could cost John the sweet deal.
In a decentralized organization, John would have the authority to make the deal with the vendor without having to obtain approval from those above him. In some instances, that authority is limited to a specific amount of money, but in most instances, John would have the power to approve the deal right away.
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Advantages of a Decentralized Organization
The primary advantage of a decentralized organization is that managers are able to make quick decisions that can save your company money. By empowering your managers, you trust their instincts and abilities, because you know they understand the daily work process better than you do. Another advantage is that it lightens your workload and frees you up to develop strategic plans for the future of your business.
If you're constantly having to micromanage the daily activities of your company, you will quickly become overloaded with problems and conflicts, which leaves you little time to deal with the major strategies that will guide your organization. When you empower your managers, you also motivate them to work harder, because they want to prove that your trust in them is well-placed. Increased motivation can lead to better communication between managers and staff members, and greater morale in the workplace.
Disadvantages of a Decentralized Organization
The main disadvantage of a decentralized organization is that you lose control over the day-to-day activities of your company. Maybe "lose" is too strong a word, but you are ceding authority to your managers, which means that you trust their instincts, skills, and talents. However, that can backfire, if your managers aren't up to the task, which can cause conflict between managers and staff, and between you and your managers.
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Another disadvantage is that your managers may have a different agenda from yours, which can create a schism between the goals you want to advance and the goals they want to advance. For example, a mid-level manager may be more interested in growing his department than in meeting performance standards.
