A recent survey of clients conducted by Mercer earlier this year focused on the types of organization change that business executives are planning to make in the next two years. Eleven different design options were covered in the questionnaire, ranging from flattening organization structures to decentralizing authority to creating more project-based units.

There were no big surprises in the findings. For example, 41% of companies are moving support functions to shared services and 15% are moving operations to low-cost locations. The most striking part of the survey was the continued interest in decentralizing operating governance versus centralizing it. According to the survey, 31% of companies are considering decentralizing their organizations, while 21% are considering centralizing them further. We don’t find either of these ideas to be very helpful and some companies would find the results to be confusing. We prefer to reframe the conversation entirely away from debating the pros and cons of central versus decentralized organizations. The fact is we need governance models that are agile and oriented toward strong center-led agendas that are shared by global business units, regional commercial organizations, and enterprise functions.

Moving the organization to a more shared set of priorities aligned across business units and functions is all part of building more effective networks and communities that must work together to deliver results in today’s complex global organizations. The need for greater integration across units should not be confused with control. Centralizing your organization often is more about the latter and less about the former. Companies need to push more decision authority and responsibility down into the organization while flattening layers, and at the same time achieve the benefits of the more center-led agendas for growth. This is the tension that should be managed, rather than debating the pros and cons of decentralizing versus centralizing. It requires a very different conversation and approach to aligning structure, roles, processes, metrics, and reward systems, as well as leadership staffing and development.

27% of the companies that responded to the survey reported they would be working harder to build more networked communities both internally and externally. This is a much better conversation to have. In order to navigate the challenges of growing large diversified multinational companies, communities must be built around more center-led agendas while simultaneously empowering operating teams close to the customer.

 

Amy Kates and Greg Kesler

Managing Partners