When it comes to business, most of us are familiar with the concept of centralization. A centralized way of decision making is autocratic in nature, in which central leadership retains maximum control. In today’s world, however, many businesses are shifting towards a decentralized system of management. This shift begs the question: What exactly is decentralization?
According to the Business Dictionary, decentralization is the “Transfer of decision making power and assignment of accountability and responsibility for results. It is accompanied by a delegation of commensurate authority to individuals or units at all levels of an organization even those far removed from headquarters or other centers of power.”
In simpler terms, decentralization is an organizational structure that involves delegating responsibilities and decision-making powers across all levels of an organization. This structure stands in stark contrast to centralization, where decision-making is reserved for top management. Like all other structures, decentralization has its pros and cons. Here, we will examine some of the benefits and disadvantages of implementing a decentralized system within a business:
Advantages of Decentralization
It encourages innovation
Due to the nature of decentralization, bureaucracy is kept to a minimum. Thus, there are far fewer bottlenecks, allowing for an increased exchange of ideas. In this setting, individuals are encouraged to be innovative and come up with new solutions and ideas. Unlike in a centralized system, where the views of employees are often overlooked by upper management, a decentralized system ensures that employees’ opinions are heard and considered — a key component of positive leadership.
An emphasis on innovation is especially important in today’s world, where technology is advancing at an incredible pace. For instance, consider the rise of the internet of things. As stated by experts at the University of Maryland,“Much like the mobile takeover in the workplace, IoT devices and tools will find a place in business operations, although it will likely be a much more gradual transition. It will be important to learn how to use these solutions effectively and parse through data on a specific, qualitative level.”
With the advancements like the internet of things becoming increasingly commonplace, decentralization allows individuals to freely innovate and quickly adapt to the changing face of the workplace.
It allows for adaptation and flexibility
Decentralization is also better suited for flexibility. Because each decision does not need to be micromanaged by upper management, local leaders are able to respond quickly to changes in their locality or field. For businesses with an international presence, this quick turnover time can often be the difference between satisfied and unhappy consumers. These benefits are especially apparent in decentralized supply chain management. Experts state that one of the positives of decentralization in this field is that “each node of the supply chain can be tuned to that specific area’s demand to best serve the customer base.”
Additionally, a decentralized system makes remote working and telecommuting much more feasible due to the level of autonomy employees have. Remote working is no longer a perk or workplace “trend of the future.” Many potential employees today expect workplace flexibility and the ability to telecommute to be included in their onboarding packages. By following a decentralized structure, incorporating the expectations for remote working becomes much simpler.
It produces more leaders
A decentralized system makes way for individuals to express and refine their leadership qualities. Employees feel more empowered and are more willing to take on more responsibilities, using this as an opportunity to hone their leadership skills.
An article on the advantages of decentralization by authors at Workspirited states, “Leadership qualities find expression outside the boardroom within the silos and cubicles as well. The overall atmosphere tends to boost employee morale leading to greater job satisfaction than the strict confines of a centralized setup.” Due to its structure, a decentralized workplace has various centers of excellence, as talented employees across the organization are given the ability to shine and show their true potential. Ultimately, this system aids in promoting future leaders.
Disadvantages of Decentralization
It Breeds Unhealthy Competition
In a decentralized system, there may be many managers who have the same rank. This could often lead to diverging opinions and a lack of cooperation. Because the individuals know they have independent decision-making abilities, resolving conflicts when there is a disagreement can become very difficult. The aforementioned Workspiritied article aptly states, “A highly decentralized organization can be the battleground for unhealthy competition between local managers leading to lack of cooperation and coordination.”
It Could Risk SecurIty
Without the appropriate security measures in place, decentralization could end up being a risk to any organization. When implementing a decentralized structure, it goes without saying that more employees will have access to company data, as this is a prerequisite for making decisions.
In an age where most businesses function digitally and employees often work from their own devices, increased access to sensitive information is a very real threat. An article by Asset Panda states, “The widespread application of technology has brought with it plenty of risks, as we’re seeing with the cybersecurity concerns all over the news these days.”
With employees at various levels of an organization gaining access to company data, the risk of data breaches, outages, cybercrime, and more exponentially increases. The sheer number of autonomous parties in a decentralized system yield greater risk, especially if everyone isn’t on the same page. Thankfully, with the right security measures in place, this problem can be averted. Blockchain technology, for instance, is an example of how mass decentralization can actually aid security, prepping for a time when the digital world is completely decentralized.
It Could Lead to a Lack of Direction, Especially for New Organizations
For new organizations and startups, decentralization can come at a great cost. As these businesses are still trying to navigate the waters of the business world, strong leadership is a must. As stated in an article on Green Garage,“If they pass on the decision-making and responsibility to a number of staff who are still learning the ropes and acquiring the required skills, the organization could end up with no direction and large losses.” Ultimately, pushing critical decisions down to lower levels of an organization without examining whether employees at those levels have the skills to make those decisions can be a very costly mistake.
As with any other system, decentralization has its pros and cons. However, most of the disadvantages of this structure can be handled by controlling the degree of autonomy given to lower levels of a business. While this sort of decentralization is not strictly “pure” in regards to the literal definition of the word, it allows for businesses to avoid the extreme consequences that come with being totally decentralized. Thus, like with most things, it is imperative to strike a healthy balance between decentralization and a completely autocratic system of management.
She spends her days pondering what makes a good leader, and dreaming up ways to teach these virtues to her sons creativity enough that she’ll get more than groans and eye rolls in response. To read more of her work, follow her on Twitter @faulknercreek