Why companies keep on moving between centralization and decentralization, what is the impact and how to find a permanent position.

Moving between centralization and decentralization is common in most organizations. It’s one of the common recurring complex problems or at least a symptom of a complex recurring problem. One way or another, it feels that swinging between those two creates less positive outcomes than what the change was expected to achieve. Finding the right balance between those two opposites or at least minimizing the swing by limiting the swing boundary are better approaches. The question is how to get there?

What causes this swing?

There are several reasons that cause the swing between centralization and decentralization. The first one is that each approach has advantages and disadvantages. Over time, the disadvantage becomes more and more visible and that forces management to swing the other way, just to repeat the same scenario again. If one option had a clear advantage, we wouldn’t have this problem. The fact that this swing is common just proves that each one of those options is not a perfect solution. As always, the solution is in a combination of the two. Somewhere in the middle. 

Companies are the exception. In most social systems, decentralization is the default state, and there aren’t any forces that try to change it. Companies have one measurement of success. To stay in business they need profits. This basic need pushes people to create more order as the default behavior of a social system. Centralization is the preferred human state to increase order. But the default state of organizations is decentralization. The flip results from the tension between natural behavior and man-made structure. 

Some systems around us are simple and predictable. When a change is introduced to such a system, slowly but surely the system will return to the default and known behavior. There is a simple and known attractor that causes the system to always return to known periodic behavior. Other systems are more complex. Complex systems under certain external pressures lose the single attractor. In certain pressures, they will create unrepeatable and unpredictable behavior. Instead of having one attractor, they will have several.

Companies are a subset of complex systems. External pressure causes companies to move in unpredictable circles between two attractors, centralization and decentralization. This is the default behavior of complex systems as they enter chaos mode.  

Thinking, defining, and implementing a change from one state to another takes a lot of time. The bigger the company is, the more time it will take to implement the change. Changing centralization or decentralization will take from 6 months to 3-5 years. While it takes time to define and implement a change, in the meantime, the business reality changed. Most of the time, even if the change was the right thing for certain business conditions, once the change implemented those business conditions change and make the change irrelevant. 

What is the impact of this swing?

Every swing requires change management. Regardless of the 30% success rate of change management, the change is taking resources and impacting the company’s bottom line. It takes time to overcome the loss of years of transitions, just to start another swing. 

One damage is the confusion and negative impact on employee engagement. Swinging between two completely different models requires a fundamental change to the organization structure and has an impact on the personal connections people created over the years. Those continuous changes make people confused. Who I report to, with whom I’m working, who I’m serving, what are my current goals are all common questions when the company keeps on swinging from one type of organization to another. 

Confusion and repeating changes are also a major contribution to the engagement level of employees. Reorganization perceived by many people as change done by management without engaging employees. From people’s point of view, it’s a lack of trust and respect, they are filling like resources that being told what to do, not as people that contribute. Imposed decisions not just receive more resistance, they also have a negative impact on engagement.

Constant changes such as switching from decentralization to centralizations and vice versa create a culture of reacting instead of responding. Restructure is a one-time event that demonstrates reaction to external and internal events and indications. The alternative is an ongoing planned small change, which is a continuous response to events. Installing a culture of reaction is destructive to an organization. It pushes people to take fast actions instead of planning ahead of time and respond to events.

How to find the balance between those two opposites?

In my own humble opinion, the last paragraph is the main key to finding the balance. The main drive of today’s management is a revolution. Few people in the company will plan a grand plan that will restructure the organization. Once those few finished their work, the plan introduced and people expected to execute it. For most of the people, it’s a surprise and sudden move they never heard of, but they expect to follow. 

The alternative is evolution. In evolution, individuals and teams in the organization slowly adjust themselves to their environment. Some of those changes proved to be better than the others. Successful local changes will start to be adopted by other people and groups until it is the new norm. Evolution never stops and there isn’t any planning or big enouncements. It’s a long and slow process that enables many changes to test themselves against reality and drive constant change.

There are many advantages to the evolution approach. The main one is that it is a process driven by people. Therefore, it has more support than a change that was decided by management. Evolution slow progress also tends to find the right balance between centralization and decentralization. If a group is swinging too much to one side, the feedback from the environment will cause a course correction.

Centralization or decentralization are also depended on the interlinks between different groups in organizations. From our point of view, there are at least seven types of interlinks between groups (interactions, impacts, flows, strategic goals, tactics, dependencies, and aggregate interactions). Each one of the seven types influences if several groups connected to reach one goal can benefit more from centralization or decentralization. This is where galaxies can help. Using our framework companies can map interlinks and determine what is the preferable decision making for each need.

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