Decentralization is not the same as compartmentalization


I spent most of my career working in what I described as a “painfully decentralized company.” While many thought I was throwing shade at my previous chairman, I always regarded it as a compliment. There were times when I thought it was incredibly challenging to get things done across the enterprise, but for the most part it sure beat rule from the center.

Many companies struggle with where the center of gravity should be for certain business or service centers. We’ve all been caught in the ebb and flow of (de)centralization whether as a manager of one of the target divisions or as an internal customer of one.

History tells me that HR and finance are the usual candidates for centralization, given that they provide enterprise services where extreme agility is needed as compared to other units. Needless to say, this all depends on the size of the respective business units.

However, problems occur when decentralization gets confused with, or evolves to, compartmentalization. Even worse, some CEOs create an enterprise-wide ambiguity about whether a service unit is truly independent (decentralized) or whether it is still a compartmentalized HQ group with a cool name located in a different building.

Let me give you an example. In many consumer product companies, internal organizations can be launched to service certain aspects of the business. Most trendy would be forming a “Digital Marketing Division” reporting to a Chief Digital Officer. Such independent service groups can create the illusion of decentralization given that the unit is technically not part of corporate HQ overhead. Unfortunately in many of these launches, the digital function becomes compartmentalized causing the business units to lose agility in one of the most important aspects of their business.

In the “painful decentralization” I mentioned above, the chairman balanced decentralized entrepreneurialism in the launch of new service centers with the mandate that (1) they make a profit and (2) business units could take their business elsewhere, including bringing it back within their own division.

This avoided one of the greatest perils of enterprise compartmentalization, that the business units were stuck doing “all things digital” through the Chief Digital Officer’s group.

Many CIOs have fallen victim to this dynamic in the form of infamous “shadow IT” staff being hired by and implanted in non-technical business units. This is again based on the perception that IT has become compartmentalized and doesn’t run its business  based on internal (or external) market forces. They’re saddled with being perceived as the “land of slow and NO!” while they regard their agility-driven customers as “unguided missiles.”

Despite my 30-year infatuation with the advantages of decentralization for innovation and corporate dexterity, this model can be a challenge for those not comfortable with the collaboration skills needed to build programs across decentralized divisions. For them, compartmentalization and centralization can provide the connective tissue to work across the enterprise.

Identifying corporate connectors is a key element to the success of decentralized structures. This requires what I referred to as a “representative of the Holy See” skill set where there is no perception of personal bias (or business unit bias) when pulling in disparate stakeholders for the common good. Those employees who possess cross cultural skills can leverage them to connect both domestic and international business units for incremental revenue, making them among the most valuable of corporate assets.

Where does your enterprise fall on the centralization, decentralization and compartmentalization scale?


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