How to Build a Decentralized Organization: 5 Key Steps

Contemplating the best structure for your business operations? Wondering whether decentralization is right for you? Here’s what you need to know.

To decentralize or not? According to McKinsey and Co – writing on the pros and cons of different corporate structures – it’s a question as old as time. A ‘tug of war’ between the desire for control and the need for agility.Â

In recent years, the rapidly evolving world of work – and volatile economic conditions – has made the question seem more pressing and pertinent. Which business model paves the way for higher profit and growth?

According to research from consultancy firm Egon Zehnder, decentralized companies outperform non-decentralized companies in performance and revenue. But decentralization isn’t without its risks and challenges.Â

As a successful operations director in a professional service business, you know that organizational design can make or break a service business.Â

So is decentralization the answer? What are the pros and cons? And how do you practically move away from a centralized organization?Â

Centralized organizations with rigid hierarchies and top-down leadership may hamper agility and innovation. That’s why many companies aim to build decentralized organizations that empower employees. But how do you actually make the transition to a decentralized structure? In this guide we provide five key steps to help decentralize your organization.

What is a Decentralized Organization?

A decentralized organization distributes authority and decision-making powers across various individuals and teams. Key characteristics include:

  • Flat or flexible hierarchies instead of multi-layered ones

  • Cross-functional, autonomous teams with decision-making power

  • Open information sharing across the organization

  • Empowered employees who can take initiative

  • Diffused leadership where various people lead based on skill and interest

  • Flexible organizational roles aligned to objectives

  • Culture of accountability and transparency

Decentralization creates an agile environment that can respond faster to opportunities. It boosts engagement by giving employees autonomy over their work. However, the transition requires thoughtful change management.

5 Steps to Build a Decentralized Organization

Building a decentralized company is a gradual process. Here are five steps to get started:

1. Establish Core Values

  • Define the core values and culture you want to foster, like collaboration, transparency, accountability.

  • Ensure senior leaders model these values in their everyday behavior.

2. Provide Company-Wide Education

  • Train all employees on the vision for decentralization and reasons behind it.

  • Clarify new structures, roles, expectations, and freedoms.

3. Develop Cross-Functional Teams

  • Break down functional silos and restructure work across multi-disciplinary teams.

  • Provide teams autonomy on how they organize work to achieve goals.

4. Create Open Communication Systems

  • Institute open communication channels like all-hands meetings and Slack.

  • Senior leaders should actively participate and welcome input.

5. Flatten Hierarchies

  • Reduce management layers between frontline staff and leadership.

  • Consider eliminating titles to enable fluid roles based on skillsets.

Key Success Factors for Decentralization

To successfully decentralize, focus on:

  • Training – Educate employees on capabilities needed for independent decision-making like critical thinking, data analysis, problem solving.

  • Accountability – Maintain accountability through goal-setting and key results. Leaders should empower yet also evaluate outcomes.

  • Information Sharing – Ensure open information access through central platforms and documentation.

  • Change Management – Clearly communicate changes, address concerns, and transition gradually.

  • Decision Rights – Decide which decisions are decentralized versus centralized. Avoid ambiguity.

  • Culture – Instill culture of collaboration, innovation, transparency, empowerment at all levels.

Benefits of a Decentralized Organization

The advantages of decentralization include:

  • Agility – Respond faster to customer needs and market changes through flexible structures.

  • Engagement – Employees feel empowered and intrinsically motivated when given autonomy over their work.

  • Learning – Fluid boundaries spur learning and idea exchange as employees collaborate across teams.

  • Innovation – Bottom-up innovation flourishes when employees are empowered to identify issues and implement creative solutions themselves.

  • Accountability – Peer accountability increases when decisions are made closer to the work.

  • Development – Employees develop leadership skills by having decision-making power over their work.

Challenges of Decentralization

Decentralization also comes with some key challenges:

  • Accountability – Lack of top-down control can blur accountability if goals and oversight are unclear.

  • Inefficiency – Duplication of work may increase initially as cross-functional teams figure out roles.

  • Learning Curve – Employees may struggle initially with added responsibilities if not given adequate training and support.

  • Communication – With diffused decision-making, ensuring adequate transparency and information sharing becomes critical.

  • Culture Shift – Moving from a command-and-control to empowerment culture requires buy-in at all levels.

By setting a clear vision, transitioning gradually, training employees, and defining accountability, companies can reap the benefits of decentralization while managing the risks.

Decentralizing your organizational structure can enable faster innovation and engagement by empowering employees. Begin by defining your cultural values, educating staff, forming cross-functional teams, opening communication, and flattening hierarchies. Ensure you provide enough support, training, tools, and accountability as employees take on enhanced responsibilities. Done right, decentralization can transform your organization into an agile, innovative, and rewarding workplace for all.

how to build decentralized organization

Five key characteristics of a decentralized organization

Decentralized organizations often have a flatter structure, with fewer layers of management between employees and senior leaders. There are typically fewer managers at intermediate levels and more self-management.Â

This democratizes and diversifies decision-making processes throughout the entire organization, and encourages the free flow of information and ideas.Â

Another key characteristic of a decentralized organization is how decisions are made. When an organization is decentralizing, some decision-making is removed from the C-suite and entrusted to team members at lower levels of the organization. Employees at departmental or team levels – or in specific branches – are empowered to make their own decisions without reference up the chain of command.

Ed Frauenheim, author and Senior Director at Great Place to Work US, rates decentralized, collaborative decision making as one of the most crucial benefits of decentralized organizations. In his view, it is piece in the vital puzzle of what makes a company a truly great place to work:

Innovation and agility

A decentralized organization is more agile and responsive to local challenges and opportunities. Decentralized decision-making allows teams to quickly adapt to dynamic market conditions and customer needs. This ensures people can use their initiative to respond to and resolve issues as they arise – providing they align with the companys overall vision and values.Â

Individual teams or departments have a higher degree of autonomy, allowing them to operate independently and respond rapidly to changing client requirements and market trends. The many benefits of autonomy at work can be found in decentralized organizations – including a culture of ownership and accountability, innovation, and higher employee engagement.

Decentralized organizations often rely heavily on data and analytics to make informed decisions. Centralized data systems provide indisputable insights to decentralized teams. This enables confident decision-making at all levels, without the need to reference upper management.Â

Could a DAO Build the Next Great City? | Scott Fitsimones | TED

How to build a decentralized organization?

1. Establish the company values In order to build a decentralized organization, first establish your company’s values and culture. Company values can act as guidance for professionals in new leadership roles, and having a strong workplace culture reinforces your organization’s values.

What is a decentralized organizational structure?

This organizational structure empowers professionals to participate in the growth of their company and can improve productivity. Many organizations can benefit from this management style, and if you’re in a leadership role, you may benefit from learning about decentralized organizations.

Why is a decentralized organization better than a centralized organization?

This is because mid- and lower-level employees are more familiar with completing the organization’s daily tasks. Decentralized organizations usually allow upper-level management professionals to focus on growth opportunities for the company, but they’re still available to act as guidance for some management decisions.

How does a decentralized organization make decisions?

Decentralized organizations may make decisions as a team or by asking the opinions of several employees. Because professionals of different backgrounds and positions may be able to offer more insight on certain decisions, including all employees allows organizations to make well-informed decisions. 3.

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