Most managers know how important people are to initiate growth processes. To use this potential, however, they have to develop the right corporate organization.

Setting in motion and maintaining a dynamic and profitable growth process is a highly complex task for managers. In a survey conducted by Roland Berger Strategy Consultants, 42% of the executives said that growth depends mainly on the people involved. Skills or systems are seen as far less important in this context. As far as corporate organization is concerned, it seems that managers are facing a dilemma. In order to grow, economies of scale and cost effects from centralization must be combined with elements of decentralized organization.

According to Martin Wittig, member of the Executive Committee of Roland Berger Strategy Consultants, companies should combine decentralized structures with a strong centralized backbone to overcome this dilemma. Wittig shared his thoughts with students, academics and managers during the 10th World Business Dialogue at the University of Cologne.

In a panel discussion entitled "Centralized or modular – how to organize the new corporation," Wittig argued that the advantages of decentralized structures are obvious. "In turbulent global markets, being close to the market is decisive. Only then can companies feel the impact of competitor moves and put branding and pricing strategies into immediate market action."

Decentralized companies are more innovative

This is also a reason why decentralized companies are more innovative, the consultant explained. "They are close to their customers and their needs, they offer more creative freedom and they promote competition."

According to Wittig, a decentralized organization can only be successful if it is based on trust. The most important features of such an organization, he argues, are:

_Stretching targets. Setting ambitious goals, and giving high incentives in return, will motivate all employees to do their best
_High transparency: To achieve targets, everybody in the company has to get clear feedback on good and bad performance
_Open communication. Internal information has to be honest and flow rapidly, especially when things are not going smoothly
_Individual support. Managers' leadership style should empower employees and encourage them to act like entrepreneurs

Wittig also explained how a decentralized structure could be combined with the benefits of centralization. In his opinion, it is vital that decentralized business units such as sales, local marketing or quality management concentrate on their core tasks. In order to make this possible, administrative tasks should be concentrated in a centralized corporate service center. In addition, Wittig says, centers of excellence should be designed to ensure that decentralized knowledge be made available to the entire company.

Make knowledge available to the entire company

The experience of local managers should also be considered in top-management decision processes, said Wittig. In contrast, centralized units should be responsible for global tasks such as footprint design, sourcing or branding.

Wittig explained that company size is an important factor when considering decentralization. "Simply put, in large companies, structure follows strategy. In mid-sized companies, structure follows people. This is because core competencies move with employees when they take on new tasks at the local level."

According to Wittig, the process of decentralization requires constant re-evaluation of a company's organization. Although companies still have a lot of work ahead of them in the decentralization process, their efforts will be worthwhile, Wittig said. "For each function, each management process, each link of the value chain, companies must ask themselves: do I need centralized or decentralized structures for this specific aspect? Finding the right answer is the basis for profitable growth."

If you have any questions or concerns, please feel free to contact us: