Making Decentralization Work

We don’t have the space here to cover in immense detail all the specifics of a decentralized structure. Nonetheless, there are some general principles about making a decentralized structure work:

• Link to vision. If your vision (values, purpose, and mission) is clear, people or groups operating autonomously can self-regulate themselves relative to the shared overall vision. They can all sight on the same guiding star, yet be in separate vehicles heading toward that star. Shared vision is the crucial link in making decentralization work.

• Overcome lack of centralized control with increased communication and informal coordination. People need to know what other decentralized subunits are doing so that they can act in concert with them. At Patagonia, for example, product line directors meet at least once per month to coordinate. Another way to gain increased communication and coordination without the burden of increased bureaucracy is to use electronic communications— electronic mail, voice mail, computer networks, tele-conferencing, etc.

• Facilitate the transferring of valuable knowledge between sub-units. Hold internal seminars where members from different sub-units share ideas, present papers, and learn from each other’s experiences. Grant prestigious awards to those who contribute a significant idea, invention, or other valuable assistance to another sub-unit.

• Have an open system. People operating autonomously can make good decisions only if they have good information. One of the best ways to achieve this is to make lots of information available to people—even traditionally sensitive information. At NeXT, for example, any employee can get access to any piece of information—even people’s salary levels and internal financial information. Although you may not feel comfortable going to this extreme, we urge you to head in this direction. Again, compare centralized, secretive societies like the Soviet Union (and how terribly inefficient they are) with open systems like the United States. The same principle applies to companies.

• Avoid matrix structures. In an attempt to have the best of both worlds, some companies make the mistake of creating matrix organizations. Don’t do this. Matrix structures remove the fire of personal ownership, not to mention accountability.

This brings us to a central truth about organizations: they are inherently messy. There are no panaceas, no structures that solve all problems. Any attempts to completely eliminate the mess are doomed to failure. Yes, there are costly inefficiencies in decentralization, but the fire of personal ownership—of being our own little business—elevates human motivation and stimulates innovation in powerful, albeit somewhat chaotic, ways.

If you want the lightning bolt of innovation to strike again and again, you have to live with the inefficiencies. You’ve got to make a basic philosophical choice that the inefficiencies and disorder are worth the benefits.

It’s impossible to have an organization with all the fire and zeal of decentralization and the complete efficiency of centralized control. Pick decentralization, fully implement it, and live with its difficulties as best you can. If you try to go halfway, it’ll be like having a country shift from driving on the right side of the road to driving on the left side of the road, but only implementing it part way.

Though expensive and usually belated, reorganizations are widely regarded as the only way to realign an organization with its environment. As a report by the Boston Consulting Group put it, “Rapid change requires companies to reorganize faster than ever before.” Good luck with that!

What’s needed are radically new organizational models that downplay formal structure. In a world of relentless change, trade-offs need to be made as close to the front lines as possible. Boundaries must be malleable. Resources, rather than being hoarded, must flow unhindered toward promising opportunities. Interunit coordination must be the product of nimble, self-organizing communities and market-like transactions rather than blanket policies or cumbersome councils. In short, we need organizations that, like the biosphere, the internet, or a vibrant city, are more emergent than engineered.

If one has not internalized the concept of quality matching and the problems of change in chain-link systems, then Marco’s explanation of his actions may seem banal—he identified the three problems and worked on them in turn. But if one has these concepts, then Marco’s statement is dense with meaning.

The first logical problem in chain-link situations is to identify the bottlenecks, and Marco did that—quality, sales’ technical competence, and cost. The second, and greatest, problem is that incremental change may not pay off and may even make things worse. That is why systems get stuck. Marco’s solution to this problem was to take personal responsibility for the final result and direct others’ attention to the three bottlenecks, one after another…

… Marco avoided this problem by shutting down the normal system of local measurement and reward, refocusing on change itself as the objective…

Instead, Marco described a turnaround in which he provided the overall definition of what had to be done and in which he anticipated and absorbed the costs of change. In any organization there is always a managed tension between the need for decentralized autonomous action and the need for centralized direction and coordination. To produce a turnaround of a chain-link system, Marco Tinelli tipped the balance, at least for a while, strongly toward central direction and coordination.