More and more Public Sector organisations are moving towards a decentralised, divisional style of organisational structure. This follows similar moves in the Private Sector during the 1970ís and 1980ís where in some industries it is now accepted as being the most effective means of structuring an organisation.
The benefits of decentralisation can be considerable, but are not automatic and much depends on how well it is introduced. This note summarises what we see to be some of the key issues involved.
Likely Key Issues involved
1. How "Tight-Loose" should it be?
The key question is "What should be Corporate and what should be Decentralised?"
The problem is this. If it were left to the Divisional Managers they would say "everything", and support that with 200 good arguments. If it were left to Corporate Staff they would say "nothing", and support that with another 200 opposing but equally valid arguments. And both are being genuine. This is what makes the activity of decentralisation the most political of all change activities, with strong vested interests surfacing.
Henri Mintzberg (in "Structuring of Organisations") summarises these natural tendencies and pulls involved as:
- Corporate Centre - a pull to "Centralise"
- Divisions - a pull to "Balkanise"
- Control Functions - a pull to "Standardise"
- Support Functions - a pull to "Collaborate"
Common errors are:
- Maintaining too large a "corporate control" which then over-restricts divisional freedom.
- Over-decentralising - leaving the centre too weak to provide a "strategic capability".
- Decentralising a corporate activity with a significant "strategic" contribution.
2. The quality of the Divisional Managers
Well-established decentralised companies put enormous effort into the selection of Divisional Managers and appointments are never automatic. The success of the organisation depends almost solely on them and their management teams. in time, the Corporate Centre will cease to have either the knowledge or capability to significantly influence events.
3. A well-organised Centre
A Centre that is competent, small, very clear as to what it can and cannot do, and with excellent systems. It must feel in control and able to trust the divisions, otherwise, those at the Centre start to worry. Then they start to interfere.
4. Divisional Managers will tend to "Balkanise"
Like the "Balkan States". Generally Divisional Managers incline towards to resisting Head Office and becoming as independent as possible. A feeling that "Head Office doesnít live in the real world", "If only Head Office didnít interfere so much", "Look at Head Office charges, I could make much better use of the money and the people myself".
5. And if a Division doesnít perform?
In most decentralised companies the Divisional Manager and their team are simply fired if the Division does not perform to plan and budget. The Centre lacks the resources or inclination to do otherwise.
6. "Babies with the Bathwater"
"But we didnít mean that we should stop doing that". In most restructurings, there is an element of "throwing the baby out with the bath water" at times Ė activities which are needed centrally are found to be decentralised by default. Unfortunately, it is extremely difficult to recreate an activity that has been decentralised.
7. But, itís not just about "Structure".
In their article "Structure is not Organisation", Bob Waterman, Tom Peters and Julien Philips introduced the McKinsey 7S Model, with as the seven key elements of an organisation:
These seven elements are all interrelated - you do not just change one and leave the others alone - there is a sort of ricochet effect. In any decentralisation several elements need to change. Particular attention needs to paid to: Structure, Management Skills, Management Style, and Reporting Systems.