The recession is forcing many companies to re-think their overheads. With an eye on spend, senior teams are calculating the cost of their global structures and asking, "Should we be doing things differently?"

The centralised-decentralised debate

Cost pressures are forcing them to consider moving from a core centralised model to a decentralised model - or vice versa. Either bringing activities into the centre and having them run by one team, or distributing central functions out to the territories. While some businesses believe it will be cheaper to centralise, others think it will be cheaper to decentralise.

What if this debate is a complete distraction from the bigger topics of revenue and product innovation - the business imperatives? If you have a revenue problem, structure isn't always the answer.

Focusing on structure is easy to understand. But it's a frequent knee-jerk reaction to problems inside the organisation that becomes a rearrangement of the Titanic's deckchairs - a distraction that won't fix the underlying problem.

Structural components

We find it helps to consider the structural issue in its component parts.
1. The product part: product innovation, design and build.
2. The market part: customer segmentation. Who is buying, what are they buying and how are they buying?
3. The revenue part: the territory or branch network.

Outside strategic marketing and production, people operate on the ground in territories, countries, branches, shops, or as franchisees.

Some businesses centralise the structure of those three parts into one business entity that controls all three across the globe. Other companies decentralise their structure in up to three separate entities: separate product company, a separate market company and separate territory management.

It's not working!

Centralisation can have some advantages. But when things go wrong, staff are likely to blame the structure. "Perhaps we should decentralise? Then the territories could control their own budgets." The disharmony around central structures is usually a lack of product adaptation for local markets and few marketing conversations on the ground.

The advantage of decentralised structures is more local application, autonomy, flexibility and application on the ground. Some argue decentralised structures cost more than centralised and some argue the opposite. Others argue that either structure in the same company can be cost efficient depending on how much resistance there is to the structure.

...so let's decentralise!

"We're a centralised structure, so let's decentralise," is a typical response from an organisation when things aren't going too well. People say, "Yay!" and the energy goes into the reorganisation for a few years while everyone gets focused on how the organisation might eventually look.

But once they're in the decentralised structure, they begin to see its disadvantages. Everyone that liked the previous structure voices their opinion and spends the next couple of years arguing for centralisation. They win the argument and back goes the organisation to its centralised structure.

Then the reverse argument wins the day as centralisation fails. The company moves back to a decentralised structure - and then back again to centralised, all the time ignoring the underlying business problems.

Is changing the structure the answer?

Not necessarily. The change could create bigger problems if it doesn't energise staff and customers and could cost the business more overall, even if it saves a small amount on administration. Added to which, the cost of the change project itself is likely to be significant. Plus the accompanying staff distraction while they look to see who'll end up in which chair - including their own.

For every advantage of a decentralised structure, there are equally compelling disadvantages. And the same for the centralised model. In most cases the centralised-decentralised debate is just a distraction because structural change feels like an easy solution. It energises people momentarily while they feel they are getting somewhere. But don't confuse movement with progress.

Behaviour is at the heart

When problems occur it's common for people to focus on structure and say, "We'd all get along better if we were decentralised (centralised)." In a decentralised business the idea of working better together if the organisation were centralised is a common one - just one company and not separate companies, or just one structure and not several.

But the answer isn't commonly structural. It's behaviour and behaviour is about personal choice. If I work in a different business from you in a decentralised structure, it's up to me to participate with you. Forcing you into the same centralised structure as me won't necessarily get us to work more closely.

Behaviour generates more (or less) customer referrals

For example, even in centralised sales and marketing structures people still don't refer customers to each other. We often talk to executives in decentralised territories about how to get people referring more customers internally. They regularly ask, "Should we become centralised?" Our response is that centralising won't force people to work together better and we have plenty of centralised examples where people still don't refer work.

A centralised structure doesn't force people to work together effectively because structure doesn't force behaviour. Behaviour is a choice we all make as individuals and we're seeing the recession's effects where businesses have been hit particularly hard.

Scarcity mindset creates silo behaviour

For those employed on smaller base salaries with big bonuses, their bonuses are being cut in line with the recession. Their immediate response is to pull back within themselves. "My bonus has been cut, so I must focus on getting more work for myself to increase it. I don't care about anyone else in the organisation. I only worry about me."

Recessions force a feeling of scarcity, which drives silo behaviour. "There's not enough around so I'll grab what I can." Once people become siloed, their feeling is always one of isolation.

In this example, scarcity is creating scarcity because no one refers any work. When asked why, people respond, "No one refers work to me so why bother? I'll behave in an abundant way when we are abundant. When I make enough money I'll refer my clients to other people."
Instead, behaviour must acknowledge that to generate abundance you must behave abundantly.

Too many brands?

In addition to the structural debate is the one around brand. One company with many brands is asking us, "Do we need so many brands? Are they all cost effective? Is brand extension a good idea or should we have just one brand?" It's almost the same conversation as structures - to centralise or decentralise the brand.

Many manufacturing companies run a multitude of sub-brands as well as a central brand. Take BMW for example. BMW is the company brand and the strongly sub-branded products within it include the 5 series saloon, Z4 sports car and GS enduro motorcycle. Diageo is a further example, but a business that doesn't much use the company name in the market. Instead it is known variously for Guinness, Smirnoff and Baileys.

Single versus multiple brands

Some businesses decentralise their structure around their sub-brands. In other words, separate company entities. While many FMCG companies maintain centralised structures alongside sub-branded products, service-based companies find that difficult and tend to decentralise around both brand and structure. Several accounting and legal professions have tried to create a one-stop-shop with a centralised structure. But clients have not reacted positively to a single brand for both accounting and legal services and are disinclined to trust a central brand to do both jobs.

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