A recurrent dilemma that plagues managers in charge of designing organograms: Should decisions be centralized or decentralized?
Different industries will favor one decision-making model over another. Capital-intensive, heavily regulated, high-tech, or commodity industries may benefit from centralized decision-making. For instance, decisions of portfolio selection, pricing, R&D, and target markets can be centralized in pharma, healthcare, aviation, banking, and defense. On the other hand, retail, FMCG, software, food, and agriculture tend to thrive best when their management is decentralized.
However, the dilemma often becomes a headache because the problem is ill-defined. Managers try to solve a problem of hierarchy and power distribution when it’s actually a problem of aggregation. Because of that confusion, authority and accountability are placed incorrectly, typically higher in the hierarchy than they should be.
Aggregation problems involve combining information, resources, and actions to achieve a satisfactory outcome in a given context. From a systemic perspective, “purpose” is the efficient use of energetic flows to accomplish the reason the system exists. The more economic and flexible a system, the more resilient it is. The closer aggregation happens to the action, the more efficient the system is.
In organizations, as information, resources, or decisions circulate beyond the point of execution, the risk of redundancy, delay, errors, and energy consumption increases, rendering the system heavier, costly, and inefficient.
The Unconscious Skill 