Centralized or Decentralized? That is the Question.
I often get asked by school district leaders and other friends in HR to explain the difference between centralized and decentralized organizations and which structure works best. While it is easy to distinguish the characteristics of each type of organization, neither approach is necessarily better than the other. It depends on the life cycle stage, leadership, and strategy of the organization.
According to Merriam-Webster's Dictionary, "centralize" means to cluster or bring around a center, or to concentrate authority or power in a central group. In a centralized organization, all of the "power" or decision-making authority lies with a group or individual at the top. The other members of the organization then work to carry out the decisions made by top-level leaders. A decentralized organization does just the opposite, spreading decision-making authority to managers at various levels. Both operational structures have pros and cons and can contribute to organizational success in the right situation.
A centralized structure can help organizations control costs, quality, efficiency, messaging, and overall operations. However, the individual or small group of decision makers at the top of a centralized organization may not be good at making other important decisions concerning organizational fit in a community, stakeholder desires, customer needs, and more. A centralized structure may not work for organizations that need to have local buy-in to be successful. Another potential disadvantage of a centralized model is bureaucracy in which employees have to wait for information, data, direction, or decisions from the top. This may lead to staff who feel as if they're just "part of the machine" rather than a valued individual in the organization.
An example of a (typically) centralized process in many K-12 and higher education organizations is purchasing. There is a specific process that details what you can buy, how you ask for it, how it gets purchased, how it gets billed, etc. I have heard some school officials comment that their district's processes around purchasing are burdensome or don't make sense, and if the procurement department would "just understand their needs," they would see why certain supplies, machines, and other resources are needed. Sound familiar?
Decentralized organizations, on the other hand, are generally more adept at making decisions with local context in mind, moving quickly, and engaging customers in a way that is more meaningful. Staff may also be more engaged as they are empowered to make choices about their work and their area of the organization. A potential downside of the decentralized structure is that local decisions may not align with the larger organizational goals around budgets, efficiency, messaging, operations, legality, etc. Organizations could choose to adopt a decentralized model for a variety of reasons, including the importance of local context to success; a concern over becoming too bureaucratic; an overall trust in managers at all levels of the organization to make decisions; or an instance of mismanagement as top level leaders have lost control or were not qualified enough to have it in the first place.
In many school districts, the teacher hiring process is (typically) decentralized, meaning that principals individually build a selection process, interview, and then select teacher candidates. This allows the principal to select candidates that 'fit' their building culture, which is a positive thing. At the same time, some principals may not be skilled at hiring or may not have time to do the job well with increased demands around educator evaluations and other day-to-day issues in schools.
As you can see, the decision to act as a centralized or decentralized organization is dependent upon many factors, but it really matters to an organization's short- and long-term success. Let's examine a real life example of an organization that shifted from a decentralized to a centralized model that many of us know: Chipotle.
In 1993, Steve Ells had an idea and not an idea that he thought would grow into one of the largest and most successful restaurants in the United States. The first Chipotle Mexican Grill was opened in 1993 in Denver, Colorado, and after expanding to multiple locations in the Denver area, went public in 1998. Originally, Chipotle's plan was to sell franchises all across the country. But, after company officials began to visit these new stores, concern grew over food quality and consistency. A chicken burrito bowl with guacamole may be just how you like it at the Chipotle in Colorado, but taste completely different at the Chipotle in Texas. The company soon scrapped their franchising plan, and now (with a few exceptions), all Chipotle restaurants are owned and controlled by corporate. If you check out the FAQ document on Chipotle's website, is says, "Nope. We're not into franchising. But if you have a recommendation for a location, hit up the Development section of the site."
This is a perfect example of an organization that wished to move towards a decentralized structure, but after time and experience, realized that their mission of quality and consistency could not be accomplished under that model.
Is your organization centralized or decentralized? What opportunities and challenges do you observe as a result? Share your story!