UNTANGLING DECENTRALIZATION

Presented by J. B. Nangpuhan II (MPA Student) for the class (Organizational Design) of Dr. S. K. Kim at Chonnam National University, South Korea. 2010

 

SUMMARY

 

KEY TERMS:

·         decentralization – 분권화

·         centralization – 집권화

 

INTRODUCTION

In this chapter, centralization and decentralization in terms of power over the decisions made in the organization will be exclusively discussed. When all the power for decision making rests at a single point in the organization – ultimately in the hands of one person – we shall call the structure centralized. To the extent that the power is dispersed among many people, we shall call the structure decentralized. The design parameters form an integrated system in which each is linked to all the others: change any one and all the others must be changed as well. Decentralization is elaborated last in this chapter because it is the most complex of the design parameters, the one most in need of an understanding of all the others.


I.        WHY DECENTRALIZE A STRUCTURE?

A simple answer for this is because not all decisions can be understood at one center, in one brain. Contrary to decentralization, centralization is considered as the tightest means of coordinating decision making in the organization which is being implemented through direct supervision.

Another reason for decentralization is that it allows the organization to respond quickly to local conditions. Also, decentralization is a stimulus for motivation. The organization can attract and retain such creative and intelligent people and utilize their initiative by giving them considerable power to make decisions. Motivation is also a key factor in most managerial jobs. Giving power to the middle-line managers also trains them in decision-making which prepares them to take over the job of the chief executive someday.

 

II.      SOME CONCEPTUAL CUTS AT CENTRALIZATION/DECENTRALIZATION

Centralization and decentralization should not be treated as absolutes but rather as two ends of a continuum. Much of the confusion seems to stem from the presence of a number of different concepts fighting for recognition under the same label.

A.      Three Uses of the Term Decentralization

1.       In the dispersal of formal power down the chain of authority, the chief executive may choose to disperse (delegate) it to levels lower down in the vertical hierarchy. This is called vertical decentralization.

2.       For the decisional power – in this case, primarily informal – may remain with the line managers in the system of formal authority, or it may flow to people outside the line structure – to analysts, support specialists, and operators. This is called horizontal decentralization in which nonmanagers control decision processes.

3.       It is also used to refer to the physical dispersal of services. However, this use of the term only serves to confuse the issue. It was discuss in Chapter 3 using the terms concentrated and dispersed instead of centralized and decentralized.

 

The vertical and horizontal decentralization will be discussed further as both of them are of significant importance. In vertical decentralization, power can be delegated down the chain of authority and remain with the line managers. In horizontal decentralization, the power would be given to all the first-line supervisors.

Power over all decisions need not be dispersed to the same place. It can be disperse by selective decentralization wherein the power over different kinds of decisions rests in different places in the organization (e.g. finance decisions may be made at the strategic apex). It can also be disperse by parallel decentralization wherein the dispersal of power for many kinds of decisions to the same place (e.g. finance, marketing, and production decisions be made by decision mangers in the middle line.

A decision process is most decentralized when the decision maker controls only the making of the choice (the least he can do and still be called decision maker). In the organizational hierarchy, the decision maker loses some power to the information gatherers and advisors to his side, to the authorizers above, and to the executers below. Control over the making of choices – as opposed to control over the whole decision process – does not necessarily constitute tight centralization.

 

III.    VERTICAL DECENTRALIZATION

This is concerned with the delegation of decision-making power down the chain of authority, from the strategic apex into the middle line. The focus is on formal power by making choices and authorizes them. Three questions arise in vertical decentralization:

1.       What decision powers should be delegated down the chain of authority?

2.       How far down the chain should they be delegated?

3.       How should their use be coordinated (or controlled)?

 

Although these questions are all important, it turns out to be tightly intertwined. Dale (cited in Pfiffner and Sherwood, 1960:201) and Khandwalla (1973a) found out that corporations tend to delegate power for manufacturing and marketing farther down the chain of authority and less on finance and legal decisions. Lawrence and Lorsch (1967) found that power for a decision process tends to rest at that level where the necessary information can best be accumulated.

These findings describe the organization as a system of work constellations. Each constellation exists at that level in the hierarchy where the information concerning the decisions of a functional area can be accumulated most effectively as shown in Figure 5-2 on page 103. The figure describes a selective decentralization to be logically associated with work constellations grouped on a functional basis. But to make selective decentralization in the vertical dimension more effective, it needs to coordinate its decision making largely by mutual adjustment specifically the use of liaison devices to existing interdependencies in the hierarchy.

In the case of parallel decentralization, power for the different functional decisions is focused at a single level in the hierarchy, specifically within units grouped on the basis of market. This structure is known as “divisionalized” in the corporate sector. Parallel vertical decentralization is the only way to grant market-based units the power they need to function in a quasi-autonomous manner. But not all power will be dispersed in a divisionalized corporation. Marketing and manufacturing can be delegated to the divisions but not finance and acquisition decisions.

To impose control by the strategic apex in a divisionalized corporation, three coordinating mechanisms can be used – direct supervision, standardization of skills, and standardization of outputs. Direct supervision is useful when authorizing major expenditures of the units and to intervene when their behavior moves way out of line. But too much direct supervision defeats the purpose of the decentralization. Instead, the strategic apex comes to manage the unit rather than its own manager. The standardization of skills can also be used to control the behavior of the manager of the market unit through training and indoctrination. Parallel decentralization in the vertical dimension (to market-based units) is regulated primarily by performance control systems. Divisionalization does not constitute decentralization. Divisionalization constitutes a rather limited form of vertical decentralization.

 

IV.    HORIZONTAL DECENTRALIZATION

Horizontal decentralization shifts formal authority to informal authority since there is involvement from nonmanagers (staff managers, analysts, support services, and operators). Horizontal decentralization involves two things: the transfer of power out of the line structure means informal power, specifically of control over information gathering and advice giving to line managers and the execution of their choices; and formal power can rest elsewhere in the organization.

Assuming the presence of managers, analysts, support staff, and operators, we can imagine a continuum of four stages of horizontal decentralization, listed below:

1.       Power rest with a single individual, generally by virtue of the office he occupies (i.e. , manager);

2.       Power shifts to the few analysts of the technostructure, by virtue of the influence that their system of standardization have on the decision of others;

3.       Power goes to experts – the analytic and support staff specialists, or the operators if they are professional –by virtue of their knowledge; and

4.       Power goes to everyone by virtue of membership in the organization.

 

Let us discuss further about the power given to analysts, experts, and to every member of the organization:

A.      Power to the Analysts

When an organization relies on systems of standardization for coordination, some power must pass out from the line managers to the designers of those systems, typically the analysts of the technostructure. How much power, of course, depends on the extent and the kind of standardization. The more the organization relies on systems of standardization for coordination, the greater the power of the analysts.

Power to the analysts constitutes only a limited form of horizontal decentralization. This kind of limited horizontal decentralization in fact serves to centralize the organization in the vertical dimension, by reducing the power of the lower-line managers relative to those higher up. In short, organizations that rely on technocratic standardization for coordination are rather centralized in nature, especially in the vertical dimension but also somewhat in the horizontal.

Are bureaucracies centralized? As you can see in Figure 5-3 on page 108, the coordinating mechanisms form a continuum, with direct supervision the most horizontally centralizing and mutual adjustment the least, and with the three forms of standardization – first is work processes, then outputs, and finally skills – falling in between. Organizations that rely on standardization of work processes as a mechanism for coordination are relatively centralized. Such power to the analysts means vertical centralization coupled with only limited horizontal decentralization. On the other hand, organizations that rely on standardization of skills (having professional operators) are bureaucracies that are decentralized in the horizontal dimension.

 

B.      Power to the Experts

If the organization is dependent on specialized knowledge, the power can be relied to the experts. In this case, the experts do not merely advise but they also come to participate actively in making decisions.  How dependent the organization is on its experts and where they are found in its structure determines how much power they can accumulate. Three types of expert power are the following:

1.       Informal expert power superimposed on a traditional authority structure. The system of formal authority remains intact in the hierarchy of line managers but to the extent that the organization has need of specialized knowledge, notably because certain decisions are highly technical ones, certain experts attain considerable informal power. Some experts made choices while others gain informal power by virtue of the advice they give to managers before choices are made.

2.       Expert power merged with formal authority. As expertise becomes increasingly important in decision making, the distinction between line and staff – between the formal authority to choose on the one hand and the expertise to advise on the other – becomes increasingly artificial. The line managers and staff experts join in task forces and standing committees to share decision making power. Power within the group is not on position but on expertise. This is considered a selective decentralization in the horizontal dimension.

3.       Expert power with the operators. It is considered the most centralized case of expert power because the operators themselves are the experts. In this case, it decentralizes the organization in both dimensions: power rests in the operating core, at the bottom of the hierarchy with nonmanagers.

 

The more professional an organization, the more decentralized its structure in both dimensions. This idea clearly emerge two kinds of bureaucracy. First, it is bureaucratic by virtue of the work standards imposed by its own technostructure. It is relatively centralized both vertically and horizontally. Second, it is bureaucratic by virtue of standards imposed on it from the outside, by professional associations that train its operators and later impose certain rules to govern their behavior. This second one is decentralized in both dimensions where power rests with the operators at the bottom of the hierarchy.

 

C.      Power to Everyone

Decentralization is complete when power is based not on position or knowledge, but on membership. This means that every member participates equally in decision making, the organization is democratic. But does such organization exist? No pure democratization exist, or anything close to it. A review in the eight countries of Europe, Asia, and the Middle East conducted by Strauss and Rosenstein (1970:171) conclude the following:

1.       Participation in many cases has been introduced from the top down as a symbolic solution to ideological contradictions;

2.       Its appeal is due in large part to its apparent consistency with both socialist and human relations theory;

3.       In practice it has only spotty success and chiefly in personnel and welfare rather than in the production areas; and

4.       Its chief value may be that of providing another forum for the resolution of conflict as well as another means by which management can induce compliance with its directives.

 

Some terms that will help us understand more about organizational democracy are here. Industrial democracy means workers own many of the enterprises and elect their own managers (this has been applied in Yugoslavia). Autogestion (self-management) is a form of workplace decision making where employees themselves agree on choices (this has been applied in France). Participative management involves two things: 1. Participation leads to increased productivity: “involve your employees and they will produce more;” 2. Participation is a value worthy on and of itself: “In a democratic society, workers have the right to participate in the organizations that employ them.” The United States focused almost exclusively on the first participative management which is factual proposition. Participative management could hardly be called democratization since it is based on the premises that the line manager has the formal power and that he chooses to share it with his employees.

Some studies have shown that democratization leads, paradoxically, to centralization. Attempts to make centralized organization democratic – whether by having the workers elect the directors, encouraging them to participate in decision making, instituting rules to delimit the power of their managers, or establishing unrestricted communication channels – all seem to lead back to centralization. Other organizations come closer to democratic ideal – namely, those with professional operators, such as research laboratories and hospitals. Power follows knowledge in these organizations, which itself is distributed widely but unevenly. Thus, we shall have to settle for meritocracy, not democracy, in our volunteer organizations, and then only when it is called for by tasks that are professional in nature.

 

V.      DECENTRALIZATION IN FIVES

Five distinct types of vertical and horizontal decentralization will be discussed further. It is also shown in Figure 5-4 on page 115. These are the following:

1.       Type A: Vertical and horizontal centralization. Decisional power here is concentrated in the hands of a single individual, the manager at the top of the line hierarchy – namely, the chief executive officer. The chief executive officer retains both formal and informal power, making all the important decisions himself and coordinating their execution by direct supervision. Very little is shared to staffers, middle-line managers, and operators.

2.       Type B: Limited horizontal decentralization (Selective). The bureaucratic organization with unskilled tasks relies on standardization of work processes for coordination. The analysts play a leading role in this organization by formalizing the behavior of the other members, notably the operators, who emerge as rather powerless. The coordinating mechanism here is standardization. The structure is centralized in the vertical dimension wherein formal power is concentrated in the upper reaches of the line hierarchy, notably in the strategic apex. The role of the analysts is to formalize behavior hence; they gain some informal power, which means limited horizontal decentralization.

3.       Type C: Limited vertical decentralization (Parallel). In here, the organization is divided into market units or divisions. The managers are delegated (in parallel) a good deal of formal power to make decisions concerning their market units. The vertical decentralization is limited in nature and centralized. Of course, the strategic apex retains ultimate formal power over the divisions. Also, a few high-level planners in the technostructure retain some power because standardization of outputs is the coordinating mechanism in this organization.

4.       Type D: Selective vertical and horizontal decentralization. Here, selective decentralization in the two dimensions is combined together. In the vertical dimension, power for different types of decisions is delegated to work constellations at various level of the hierarchy. In the horizontal dimension, these constellations make selective use of the staff experts, according to how technical the decisions are that they must make: for some, they advice merely the line managers, for others, they join the managers on teams and task forces. Coordination within as well as between the constellations is effected primarily through mutual adjustment.

5.       Type E: Vertical and horizontal decentralization. Decision power here is concentrated largely in the operating core – because its members are professional, whose work is coordinated largely by standardization of skills. Vertical decentralization happens because power rests at the very bottom of the hierarchy. Horizontal decentralization, in the same way, happens because power rests with a large number of nonmanagers – namely, the operators.

 

VI.    Decentralization and the Other Design Parameters

Decentralization is closely related to the design of positions. The formalization of behavior takes formal power away from the operators and the managers who supervise them and concentrates it near the top of the line hierarchy and in the technostructure, thus centralizing the organization in both dimensions. This will result in Type A decentralization. Training and indoctrination produce exactly the opposite effect: they develop expertise below the middle line, thereby decentralizing the structure in both dimensions – this will result in Type E decentralization. In this view, specialization of the unskilled type centralizes the structure in both dimensions, whereas specialization of skilled or professional type decentralizes it in both dimensions.

The use of market grouping leads to limited vertical decentralization of a parallel nature (Type C): a good deal of power rests with the managers of the market units. For the rest, functional structure is possible with almost any degree of decentralization, in either dimension. Performance control systems are used primarily to control quasi-autonomous market units which are related to Type C. Action planning enables the strategic apex to control the important organizational decisions, although it must surrender some of its power to the staff planners, which result in Type B decentralization. Thus, planning and control systems emerge as design parameters to effect modes of extensive centralization. Liaison devices are used primarily to coordinate the work within and between the selectively decentralized work constellations (Type D).

 

VII.  Decentralization by Part of the Organization

By definition, vertical decentralization involves only the chain of authority – that is, the strategic apex and middle line. In this case, all kinds of patterns are possible. However, formal power resides in the first instance with the chief executive at the top of the hierarchy then from there, it is delegated at his will. There may be a tendency to retain somewhat more power than is necessary in the line structure, especially at the strategic apex.

In the horizontal decentralization, it brings the other three parts of the organization – technostructure, support staff, and operating core – into the power system. Staff groups do more than just advise when they have the knowledge needed to make technical decisions. Operators accumulate power when they have the expertise needed to execute managerial decisions and when they are professionals. Within the technocratic units and the higher-level support units, where the work is essentially professional, we would expect to find a good deal of decentralization, from the staff managers to the staff specialists themselves.

Direct supervision is effected through the design of the superstructure, notably the grouping into units, which creates the hierarchy of managerial positions. It is also strongly influenced by the design of the decision-making system – that is, by horizontal and vertical decentralization. Standardization of work processes is achieved through formalization of behavior. Standardization of skills is achieved through the establishment of training and indoctrination programs. Standardization of outputs is achieved through the use of planning and control systems. Mutual adjustment is also encouraged by the used of liaison devices.

 

Reference:

Mintzberg, H. (1993). Structure in Fives: Designing Effective Organizations. Upper Saddle River, NJ: Prentice-Hall, Inc. pp. 95-120