Top-led vs. decentralised decision making
In a traditional centralised organisational structure, decision-making authority is concentrated at the top, where executives make decisions based on the information supplied from the middle and bottom levels. This creates a controlled environment where information flow and decision-making falls into hierarchical boundaries.
This model works well in a slow-paced environment, ensuring stability and control over business operations. However, in dynamic markets, where fast decisions and actions are required, this model can become destructive as it can cause delays in communication and impact the quality of decisions.
In a decentralised structure, all levels of management and business functions share decision-making authority between them. Employees are empowered to take decisions and become accountable for their results. The decision-making process is transferred to people who are close to the business area where the decision takes place, and hence can make better and faster decisions. Also, it increases employee morale as they feel empowered and accountable for the success.
So, in a complex and dynamic environment where the speed of response is vital for the business success, a decentralised system is far more effective than a centralised one.
While the benefits of a decentralised system in a complex environment are clear, implementing it can be a challenge. For the decentralised structure to work it is important to ensure that employees have the right information, understand the business’ vision and have access to the right resources in order to take action. Here are my top 3 takeaways on how to design a decentralised system for a complex environment:
1. In a complex environment, business value comes from networks of value-creating teams – not individuals or departments
“In complexity, working on separate parts doesn’t improve the whole. It actually damages the whole.” Niels Pflaeging
Niels argues that there is a big difference between “departments” and “teams” as an organisational entity. A department is defined as a group of people who share the same skill-set and belong to the same specialist area. Departments work in parallel with each other. They are driven by internally-set departmental goals and KPIs, and quite often have their own budgets as well. This can often lead to isolated behaviour and a competition between departments, where true value creation becomes impossible.
According to Niels, “Value creation is never the result of individual action, but of inter-action: It is a team-based process of working “with-one-another-for-each-other.” Niels suggests that in dynamic markets the true value creation happens with cross-functional teams working in an interconnected network, where success is defined by the value created across the whole network and all stakeholders across the business.
In this model, a team is comprised of people with cross-functional skills and are fully empowered to behave as ‘entrepreneurs’ – owning a task or a project while the knowledge and information gets shared with the network of specialist groups, or what we call “departments.”
2. Empowered teams rather than empowered individuals
Empowered teams are characterised by autonomy and shared ownership and accountability between all team members. Everyone in the team has a clear role and contributes to the process of collective decision making. Niels highlights that. in a decentralized system. there are no ‘hierarchical positions’ but everyone in a team has a defined ‘role’ which is associated with “expected behaviour” and relates to a particular organisational status.
For example, the expected behaviour of a team leader would be to promote the right principles and create an atmosphere where the team is empowered and has everything needed to do their job well. This is very different from a command and control style where leaders dictate and control because their positions prescribe it.
Also, very often delegation is equated with empowerment. However, there is a fundamental difference. Delegation is focused on assigning tasks, while empowerment actually grants authority to own a task, shape ideas and make decisions. With empowerment comes accountability for results.
3. The role of leaders is to promote a healthy environment for people to do their job
In a decentralised system decision making is shifted from leaders and managers to value-creating teams: people who are close to the problem.
The role of leaders is focused on shaping the overall business vision and creating an environment for the decentralised organisational structure to work efficiently. The main focus of leadership is on driving the value creation mechanisms by promoting the right principles, ensuring that the network of teams and specialist groups work collaboratively and efficiently in a transparent manner, attracting talent and creating the right environment for development.
In other words, the role of leaders is to promote a healthy environment for people to do their job.