If you find yourself in the midst of a debate about centralization vs de-centralized organizational structure, I want to offer you a few ideas that may help cut to the chase. The video below has some topline thoughts, but the topic deserves some written word to go deeper, which follows.
First, when problem solving any issue lands in the org-chart territory, it means we are out of talent, out of ideas or trapped in an internal doom loop. Org structure should be a back drop, something that exists but never 100% matches the work flow of an enterprise. Why? Because workflow is ever changing, people come and go, influence of leaders grows and wanes and these elements will never be reflected in an org chart.
If someone comes at you suggesting an org structure or reporting change will solve all problems, run the other way. It will satisfy the other party’s ambitions for sure. Solving a problem? Meh.
I watched dozens of org changes in my career and my observations include:
- Centralization efforts are cost cutting measures. They happen after years of success start to slow down. An organization may have tired leadership, may have made many small acquisitions that are a mixed bag of performance and chaos or might be just running into legitimate economic slow down. Regardless, a genius at the top who likely has been talking to consultants, arrives with the cure all: lets centralize everything with direct line reporting to HQ! They take out any number of leaders along the way and trim costs. Success? For a time. then the real results occur in lack of responsiveness, arrogance and empire building that didn’t work.
- Consultants sell centralization. Its a fact, and sometimes they are correct. Poorly supervised small business units can waste resources and ignore governance, causing liabilities. Sometimes you need the help of consultant to figure it all out depending on the size of the problem. Two large firms merging is a classic situation that calls for the help of consultant. The catch? Not every problem calls for centralization.
- Org structure conversations help us ignore accountability. It is much easier to talk about where things should report than doing the hard work of managing performance, telling the truth and letting people go who have let the business down.
- Bob Johanson, author of Leaders Grow the Future and other forward looking books asserts that in the future “distributed leadership” will be necessary in order to deal with an increasingly chaotic world. Traditional hierarchies may be too rigid for our current environment.
- “Freedom within a framework” is the way Nestle’s current CEO, Laurent Friex describes the best way to navigate this environment while getting the most out of autonomy, but ensuring there is governance.
- A former CFO buddy of mine, Rock Foster, always insisted that there were limits to “scale” and that once any entity is at a certain size, it inevitably gets inefficient.
- Ego makes empire building a very tempting path to go down for most corporate leaders; the wisest of them will always ensure effectiveness and accountability are more important elements than the size of a given department.
- A general law of the universe is you get autonomy if you deliver results. If you don’t deliver, you get “help”.
- Activities that are not strategic and more on the transactional side can be centralized and perhaps even outsourced. No argument, however, you find arguments in defining what is and is not strategic!
Chase results, breakthroughs, innovation and outcomes. let that org chart get updated once in while, but don’t let it dictate activity.
One Response
Hey Steve, you are looking very handsome these days…..
I lived in both worlds
My bias is is de-centralization, being in the field closer to the customers both internal and external
In large organizations, certain functions make sense to centralize Procurement being one of many.