In a decentralized workplace, organizations allow certain activities to operate independently, away from central control, sometimes in separate locations. One example is a large organization that breaks up its operations into smaller separate business units, focused on specific markets or products. Organizations also set up independent design or research teams to improve levels of innovation. The aim is to re-create the flexibility, entrepreneurial motivation and close working relationships of a small business inside a large organization.
In centralized organizations, decision making is hierarchical and can be rigid. A decentralized organization allows its separate units to make their own decisions. A smaller decision-making group can make decisions faster and that can lead to improvements in project lead times. The Harvard Business School website describes a hybrid solution where decentralized units are able to make decisions, provided they comply with an overall corporate strategy set by a central decision-making team.
Smaller decentralized units responsible for specific markets or products are able to respond quickly to changing marketplace requirements. In that sense, they acquire the same level of agility as an organization’s smaller competitors. As an example, a centralized organization is likely to have manufacturing facilities designed for volume production. Changing the production line could prove a slow, expensive process. A smaller manufacturing unit would be able to respond to change more easily.
In some situations, integration and economies of scale may be important considerations in the decision to decentralize. During the 1990s, IBM took the decision not to decentralize on the basis that offering customers integrated solutions was essential to their marketing strategy. Organizations that want to decentralize for other reasons can maintain central core services such as information technology or manufacturing so that they benefit from both scale and flexibility.
The close working relationships in a small decentralized unit can be important, particularly in activities such as new product development. Small groups working face-to-face can achieve higher levels of creativity and innovation, as organizations like Google have proved. The CIO Insight website cautions that too much decentralization can be counterproductive. Teamwork and creativity depend to an extent on accidental encounters and being part of a community.
One of the challenges in decentralization is how to share the types of knowledge that can be valuable throughout the organization. Communication and collaboration tools make it easy to create and share knowledge and other project resources between different groups in an organization. All members benefit from access to shared knowledge and best practices, allowing informal groups to form and disband quickly to meet project needs. The process called Project Portfolio Management simplifies the way projects are defined, approved and delivered, enabling different levels of decentralization.