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A decentralized organizational structure is common for multinationals or expanding SMEs, companies that have developed various product lines and/or are operating or starting to operate in several markets. In this type of structure, managers or senior executives delegate responsibility and operational decision making to middle management. Thus, the former can focus on developing the company strategy in the long term, and the latter feel empowered to respond to market changes more quickly.

Any business that is in a growth phase and/or international expansion should consider an organizational shift towards decentralization. In this post we would like to highlight what are the advantages of decentralized organizational structures.

1. Improves efficiency in decision making

An important advantage of decentralized organizational structures is that middle managers and their teams are used to being autonomous, and thus are better prepared to deal with any problems that occur, without having to wait for instructions from the board. This type of organizational structures have great resilience and agility to change, and is certainly far superior to systems in which decision making is centralized.

2. Improves employee motivation

By empowering middle managers, or even entire teams, empowering them to make their own decisions and take responsibility, allows them to feel like they are the true product or project owners. Thus, they will be more committed and motivated. In addition, this autonomy teaches them to be more proactive, allowing them to do more than just following orders from their boss.

3. Trains the future leaders of the company

In connection with the advantages mentioned above, when employees take their own decisions and take responsibility for them, basically they are gaining experience to move forward professionally and to assume management positions in the future. This is the best training that the company can offer its employees, and this also will affect its own growth and expansion. It is always advisable to fill managerial positions with current employees, professionals that know perfectly how the company works and understand the market where it operates.

4. Encourages innovation

Employees feel comfortable making suggestions for improving processes or products, as they understand how their actions have an impact on the rest of the company. Besides, they tend to be more open to collaboration with other departments. If exchanges between different professionals (with different knowledge, skills and backgrounds) are encouraged, innovative ideas will emerge to improve current products and/or services, or to create new ones that better meet customer needs.

Reduces operational workload of senior executives

When a significant portion of the operational decisions are transferred to middle managers, top managers can spend more time doing business projections, learning more about technology trends and making strategic decisions. It is therefore very important that communication is two-way and flows regularly: senior officers need concise reports about the changes detected by team leaders in the market and clients; and team leaders must know if changes occur at a strategic level, in order to adapt the team’s actions to achieve new targets.  

5. Facilitates company expansion

As we mentioned in the introduction to this post, multinationals and expanding SMEs tend to adopt a decentralized organizational system, because it is a structure which greatly facilitates managing subsidiaries and streamlines decision-making. In addition, the subsidiaries actually have a better knowledge of the local market and its consumers. For this reason, it makes sense that each of them is independent and takes responsibility for making their own decisions at an operational level.

What other advantages of decentralized organizational structures would you like to highlight? You can leave your comment on our blog or via Twitter, Facebook or LinkedIn.