A View on Centralization versus Decentralization
By Ronald Bouwmeester
The road up or down
In the aftermath of economic pressure we see a strong tendency for centralization. In an effort to increase strategic and operational control, to enforce alignment and to reduce costs. This drive for centralization also occurs in many marketing organizations and can be seen on local level but more often on international level. Multinationals restructure their marketing organization on central global head quarters and sometimes in addition on a regional level. In a phase of centralization, more task are being defined and handled by the central office.
The local organization will be organized and optimized for execution and activation. Consequently the roles of the marketeers on both levels change. The last time we encountered a strong tendency for centralization was in 2003. So we have had a relatively long period without strong centralization drives. This might be the reason why today it is being perceived as (very) hard by most local marketeers.
Functions to centralize or decentralize
We distinguish three levels. A central level, a local level and a level where strong collaboration between local and central level is needed. Functions we often see centralized can be summarized under brand book, the marketing strategy, competence development, tv, online and print. On the local level, decentralized, we see promotion, point of sale development, category management, portfolio management, trade marketing, market research, sponsoring, pr and social media response. Functions where we see strong collaboration between local and central level are innovation, pricing, packaging. The subjects / functions mentioned above are certainly not all. Other marketing functions and responsibilities can and should be considered.
Advantages or Disadvantage?
At all times, choosing one model over another will bring advantages and disadvantages. Depending on the economical situation, the market, the strategy, the brands, the geography, etc. companies choose their organizational structure (see annex on criteria for centralization vs decentralization).
Advantages of Centralization
Main advantages of centralization are a better alignment of marketing processes, creating more (global) consistency. It also creates an increased competence level of the marketing organization and gives a better leverage of best practices. It increases synergies and a better addressing of strategic issues.
Disadvantages of Centralization
Centralized marketing organizations are often confronted with a more diffuse structure of ownership. The time to market is more difficult to manage and tends to increase. Through strong focus on the (big) strategic issues, local opportunities often remain untouched and create opportunities for niche players. And last but not least centralization often creates a competence gap between local and central organization.
Competence Gap
The level of competences required for the tasks and therefore the level of people differs enormously between local and central organization. And this gap tends to widen when centralizing the organizations.
“Competence gap might create disengagement”.
It is the competence gap which is most difficult to manage. And in the meantime it is the factor which limits the sustainability of the structure. A natural, coherent, connection between the ranks is essential for constant (internal) development in the marketing organization. A disconnection between the ranks, limits the development and natural flow of talent from local to central level. Is might even create disengagement. The answer should be found in close collaboration between the ranks. Only than the way up can found in a sustainable way.
Annex
Filip Wouters, Marketing VP at Microsoft and former marketing VP at Heineken, has nicely laid out the criteria to consider for centralization versus decentralization.
Paul Magill from McKinsey argued in an article in Forbes in 2012, that marketeers should reject the central versus de-central debate. The answer according to Magill is both. A close cooperation between the ranks.
