What is Decentralized Management in Business?

When it comes to centralization vs. decentralization in management, it really is a toss up between the desire for control and the desire for agility. And now, with such fast and evolving business environments, the question on our minds is which business model is going to help achieve the strongest results and unlock the most growth opportunities?

What is a decentralized business?

A decentralized organizational structure is when decision-making is distributed on a wider scale throughout the company, rather than being concentrated at the top.

Versus a centralized structure, where decision-making is determined by a small number of senior personnel at the very top of the organization, a decentralized business sees decision-making authority shared between different areas and teams throughout the entire organization. This allows for greater agility, innovation, creative decision-making and autonomy. However, it does reduce the control and consistency that a centralized model provides.

What are some key characteristics of a decentralized business?

• Flatter structure

Within a decentralized business, you’re less likely to have multiple layers of management, and instead self-management is a high priority, which helps to encourage and diversify decision-making at lower levels.

• Distributed decision-making

Decision-making is ‘de-centralized’, meaning that employees at different levels of the organization are encouraged to make decisions without direction from the top. A centralized model on the other hand would discourage this, with decisions being made and delegated from a C-suite group of individuals.

• Agile

Because decisions don’t need to be made from the top, decentralized businesses can be far more agile, making decisions quickly to adapt by using this bottom-up approach. It also means that decisions can be more innovative and creative, as the process is dispersed and diversified.

• Autonomous

A decentralized model also allows for a greater level of autonomy – without control and restriction from senior decision-makers, employees have the opportunity to make their own decisions and work more autonomously, free from restrictions, adding to the agility and innovation the model brings.

What are the pros and cons of a decentralized business model?

Pros

• Increased agility, innovation and creativity

With dispersed decision-making authority, innovation can thrive. With the agile freedom to experiment, make decisions and take risks, employees often come up with novel and creative ideas and it prevents restrictions and rigidity.

• Improved employee engagement

By giving employees the opportunity to make autonomous decisions, you can dramatically improve employee engagement. Employees who feel valued and can actively participate in influencing the direction of a business are more likely to feel excited and motivated by their work, increasing their commitment to it.

• Improved employee retention

As a result of improved employee engagement, you’ll likely see far higher staff retention rates. We know staff turnover and job satisfaction go hand-in-hand, so giving employees the best workplace experience possible can be vital for a business.

• Increased efficiency

A decentralized business model enables autonomous teams to allocate their own resources more effectively, which can boost team and workplace efficiency.

Cons

• Loss of control

Without a centralized point of decision-making, you automatically lose that area of control. If you’re in an industry where certain restrictions or legal requirements need to be followed, a decentralized model can actually be a big risk.

• Loss of consistency

By dispersing the decision-making processes and allowing individuals and teams to make their own decisions, you can lose strategic alignment – decisions are made in different ways, and guidelines aren’t always followed, which can lead to conflicts with company goals. With centralized authority, decisions can be made consistently.

• Organizational silos

With a decentralized business structure, you also run the risk of teams becoming so focused on their own goals that they lose sight of the bigger company objectives. This can lead to unwanted siloing, which can be detrimental to overall business success.

If you’re experiencing this, then coaching can be a helpful tool to help break down those organizational silos and alleviate these risks.

Is a decentralized business a good option for you?

With both decentralized and centralized business comes pros and cons. So, there’s no right or wrong model. However, if you are moving towards a decentralized business model, understand when to regain control if necessary, and encourage collaboration between teams and areas of the business to ensure the most effective and successful outcomes. If you’re looking for increased innovation and creativity to keep up with a constantly changing working world, decentralization might be the model for you. But don’t underestimate the power of a hybrid model, taking aspects of both models to ensure the best business operation possible.