To thrive in today’s business environment, you need swift and efficient decision-making that can leverage business opportunities and handle complexity within a limited timeframe. In order to achieve this, you have to be able to delegate tasks to individuals and teams that have the necessary insights to take them on and act decisively.
This process is referred to as decentralized decision-making. In this article, you’ll learn the concept of decentralized decision-making, review its advantages and challenges, how it differs from centralized decision-making, and so on.
Decentralized decision-making is the process where executive stakeholders distribute strategic or operational decisions within an organization to lower-level teams. This business culture tends to create less rigidity in a strict organizational hierarchy, in turn, encouraging innovation, fast-paced decision-making, collaboration, and employee motivation.
Decision-making is about responsibility and authority. When building a business, one of the most important questions to consider is who has decision-making authority. Whether the authority lies with the executive management (centralized) or whether it’s delegated to the lower-level teams in the hierarchy (decentralized).
Centralized decision-making is the traditional approach to decision-making, in which major decisions are taken at the top of the organizational hierarchy. The decision-making power is concentrated in a single individual (e.g., CEO) or small group (e.g., Board of Directors). Communication flows down the chain of command to the lower-level employees of the organization. It is suitable for small-scale organizations.
The strengths of this approach include:
However, the weakness are:
In a decentralized structure, decision-making and control are distributed to the junior teams or individuals at various levels of the organization. Communication is open and free. It’s best suited for large-scale organization
Decentralized decision making allows for:
With that said, it can also lead to:
Now that you have a sense of decentralized decision-making, let’s look at some of the steps you can take to implement it within your organization:
Employees must have extensive knowledge of the organization’s vision and strategy to make operational decisions effectively. A well-defined vision and strategy can help team members make the right decisions to promote the organization’s reputation.
Employees skills, knowledge, and abilities to carry out certain tasks should be carefully evaluated to determine their competency. This evaluation helps to identify the strengths needed to increase productivity within the work environment.
Initiative and creativity should be encouraged within the organization as it’s essential to allow employees to make key decisions on their own. This approach grants employees the authority to make decisions about their work.
Feedback mechanisms within the organization can help to evaluate employees’ performance. Data and feedback should be obtained to identify any area for improvement and employees that follow the organization’s policies.
To better illustrate the role of decentralized decision-making, here are some famous organizations that have implemented this approach.
Zappos, an online shoe and clothing retailer, operates on a philosophy called “holacracy,” which distributes decision-making responsibility across teams called “circles.” These teams can operate autonomously without the supervision of a micromanaging boss.
Gore-Tex is a material production company known for its decentralized model called “lattice.” There are no formal bosses or a traditional hierarchy within the company. Rather, authority is delegated to self-managed teams and employees are encouraged to take initiative.
Spotify, one of the largest worldwide music streaming companies, uses a decentralized model known as “squad,” where cross-functional teams (squads) have the authority to work autonomously on various parts of the product including what to work on and how to do it.
Decentralized decision-making lowers delays, increases product development flow and efficiency, and allows for quicker responses and more innovative solutions. In an agile environment, decision-making is delegated to employees with the most expertise and insight. The individuals who do the work are in the best position to make product decisions.
Decentralized decision-making in agile frameworks such as SAFe allows employees or teams at different levels to make autonomous decisions, resulting in faster solutions, innovation, and agility. There are three main pillars that decentralized decision-making brings to agile.
Autonomous teams are empowered to make decisions based on their expertise and understanding of the challenges. This agility enables them to respond quickly to changes in the market, customer requirements, or internal obstacles, ensuring the company adapts with flexibility.
A decentralized leadership in a large organization produces better results than centralized leadership. Employees are usually motivated to do their best when they are empowered to make decisions and take risks because they feel appreciated and heard.
Trust is the foundation on which decentralized decision-making is built. Teams need to rely on each other and communicate effectively to boost the organization’s productivity and customer satisfaction.
Today’s organizations are transitioning from old hierarchical structures to more efficient, agile, and decentralized ones. Decision-making authority is delegated to lower levels and employees are empowered to take the initiative and provide new ideas to improve the organization’s productivity and reputation.
It’s also worth noting that decentralized decision-making does not apply to all organizations. Before determining the appropriate level of decentralization, an organization should assess its size, risk management, vision, and culture.
Featured image source: IconScout
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