The definition of a decentralized organization is one in which a subset of decisions and responsibilities are delegated away from upper management. Middle management and other levels of employees are empowered to make decisions that drive a business and contribute to its operational efficiency. This shift in responsibility enables top-level executives to devote more time and focus to big-picture items that affect the company.
This article looks at the advantages and disadvantages of decentralization from a remote work perspective. We’ll look at how organizations define decentralization and how it impacts the way a company operates in today’s competitive business landscape.
What is a decentralized organization?
A decentralized organization is characterized by a well-ordered and equitable distribution of authority throughout all management levels. In a fully decentralized business, all employees have some degree of authority and autonomy. The choice to decentralize is a major decision that requires planning and the development of policies that promote the initiative.
It may be impossible to completely decentralize an organization, and a common business strategy combines elements of both a centralized and decentralized organizational structure. In this type of setting, upper management retains the responsibility for financial and other major decisions that impact the organization as a whole. Decisions affecting daily operations are handled by appropriate level employees.
Decentralized Organizational Structure
A decentralized organizational structure by definition has democratized decision-making to some extent by involving multiple levels of managers and employees. Managers and supervisors can make decisions that affect their areas of expertise and responsibility. In some cases, decisions on customer service issues may be up to the discretion of individual employees.
Entities such as business units, factory locations, or fulfillment centers gain autonomy in a decentralized organization. The following scenarios lend themselves to a decentralized organizational structure.
★ Organizations with many locations can make it difficult for centralized upper management to make effective decisions.
★ Situations that require individualized service to address immediate customer service demands need to be handled autonomously.
★ Competition may spur decentralization as decisions must be made in response to actions initiated by a competitor.
★ Dynamic business models that evolve constantly cannot be effectively controlled through a centralized approach.
★ Building an effective remote workforce requires that a company develops a decentralized management approach where individual autonomy is promoted.
Advantages of Decentralization
Now we will try to answer the question of what is the biggest benefit of decentralized decision making. Following are some of the benefits of decentralization that can help an organization flourish.
More efficient supervision
Empowering line supervisors to make operational decisions that affect production increases an organization’s efficiency. Supervisors with detailed knowledge can make more informed choices when faced with unexpected circumstances.
Enabling supervisors to take certain disciplinary actions and evaluating their performance as it relates to the decentralized infrastructure allows for more finely-tuned control of workflow.
A decentralized approach prepares an organization for the challenges of expanding the business and maintaining growth. The decision-making skills learned by lower-level management can be used to lead new business units or geographically diverse facilities.
Improved employee morale and communication
Managers, supervisors, and other employees with decision-making responsibilities demonstrate a higher level of job satisfaction. A greater sense of contributing to the organization’s success fosters a spirit of togetherness and a willingness to go the extra mile when necessary.
By spreading out organizational responsibilities, communication between employee groups is facilitated. Gathering the information needed to make good decisions requires management to develop relationships with workers that benefit the company and everyone involved.
Internal growth and diversification
Each unit in a decentralized organization exercises a degree of freedom and autonomy over operational decisions. Upper management can promote healthy intra-company competition based on the independence of different departments.
Over time, individuals become increasingly skilled and more comfortable making impactful decisions. This hands-on leadership training is essential for an organization’s continued growth.
More accurate and timely decision-making
Having operational decisions made by lower-level management often leads to more accuracy and is one of the primary reasons for decentralization. The experience and knowledge of these individuals enable them to quickly assess a situation and make the correct choice without engaging upper management. Accurate and timely decisions can be the difference between successfully addressing a situation and having it cause major disruptions to the organization.
A more satisfying work experience
In a decentralized environment, a large number of employees are empowered and given responsibility for the organization’s success. Decentralization increases the feelings of satisfaction and usefulness that are basic components of human nature. A company staffed by satisfied managers is well-prepared to meet the future.
Reduced upper-level management workload
The complexities of running a modern organization can be addressed with a decentralized mindset. When lower-level managers and employees are empowered to make decisions, top executives can concentrate on what they do best.
What are the Disadvantages of Decentralized Management?
Organizations need to be careful to avoid several disadvantages that can arise from a poorly planned and executed decentralized management approach. These issues include:
➤ The potential for work to be duplicated;
➤ Difficulty in implementing organizational policies;
➤ Unhealthy internal competition.
A decentralized organizational structure may be unsuitable for new companies or startups. This type of organization can benefit from strong centralized management until it gains traction in the market.
The Future of Decentralization
The COVID-19 pandemic has spurred the growth of decentralization and the expansion of a remote workforce. Companies that were initially reluctant to absorb the financial and organizational costs of migrating from legacy systems have been forced to rethink their approach. Businesses in virtually every market sector need to evaluate the benefits of decentralizing and chart a viable path for their unique situation.
Technology, which is blamed for many of the ills facing the world, may be able to change things for the better by enabling a remote workforce effectively operating between geographically distributed teams.
Some of the changes brought about by the pandemic have become the new normal. Many companies will not go back to the pre-pandemic methods of doing business. A decentralized and remote workforce gives employees a better work-life balance while still producing value for the organization. Forward-thinking companies should consider a decentralized organizational structure that meets the remote work demands of their employees and furthers their business objectives.