Decentralized Organizational Structure

In a decentralized organization, senior managers surrender some degree of decision-making power to department heads, project managers, lower-level managers, and sometimes even frontline employees. Under a decentralized organizational structure, senior-level managers transfer some degree of decision-making power to those beneath them.

Understanding a decentralized organizational structure

When power is distributed in this way, the senior management team can focus on more critical endeavors such as strategic planning while others take care of day-to-day operations.

This arrangement works particularly well in the following scenarios:

  • When a company is required to deliver individualized customer service.
  • Dynamic markets where the company must be flexible and make decisions quickly.
  • When a business model constantly changes in response to new developments.
  • When a company’s workforce or workload grows to a point where delegation to lower levels of management becomes necessary. 

Note that while many companies start with a centralized structure and become progressively more decentralized as they grow, most will never embody one or the other and instead will utilize a mixture of both. 

Benefits of a decentralized organizational structure

So what are some of the benefits of a decentralized structure other than enabling senior management to spend more time on critical tasks?

Additional benefits include:

  • Employee empowerment – when individuals are afforded the freedom to make decisions that affect them personally, they tend to feel more empowered. When employees feel more empowered, they are more productive and able to solve problems with creative solutions.
  • Enhanced decision-making capacity – in a centralized structure, information is run up and down the chain of command before a decision is made. When those involved in the process have to wait for the approval of someone above them, the process slows down and becomes inefficient. Decentralized organizations do not have this problem because decisions can be made and actions implemented on the spot.
  • Expansion – decentralization enables organizations to scale more easily since senior managers are not overloaded with work and can instead focus on devising growth strategies. What’s more, regional managers with more responsibility can make swift and responsive choices based on local circumstances to drive the company forward.

Drawbacks of a decentralized organizational structure

Despite the benefits, there do exist some drawbacks to this structure:

  • Reliance on poor leadership when extra responsibility is awarded to low-level managers who are incompetent leaders, the company can suffer brand reputation and become less efficient. Company culture may also deteriorate. 
  • Cost – a decentralized structure tends to be expensive since there are more skilled managers with greater responsibility on the payroll. Costs are increased further when one considers that for departments to be self-sufficient, functions such as marketing and accounting must be provided (replicated) for each.
  • Self-interested teams – over time, lower-level managers and teams may start to make decisions that reflect their best interests and not those of the organization or its mission. This causes issues with knowledge-sharing and communication between teams.

Key takeaways:

  • Under a decentralized organizational structure, senior-level managers transfer some degree of decision-making power to those beneath them.
  • Some of the benefits of a decentralized organizational structure include employee empowerment, enhanced decision-making capability, and more potential for growth and expansion.
  • One of the most obvious drawbacks of a decentralized organizational structure occurs when incompetent lower-level managers are given more authority or responsibility. Other drawbacks relate to the cost of the approach and the potential for teams to become self-interested over time.

Read Next: Organizational Structure.

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