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The pros and cons of decentralization

The pros and cons of decentralizationImage Credit: Supplied

We have seen some UAE-based companies begin to dismantle top-heavy headquarter organizations. The perception is, the support functions have become detached from the needs of the business units (BU) and the ultimate end customers. Functions once centralized at the corporate level were distributed to individual business entities and their profit centers, which definitely require direct and immediate support.

This sounds like a good approach to keep HR, IT and the Finance departments closer together, and for the staff to be more focused and accountable. Information would flow openly between BU heads and support unit heads. Corporate objectives are different from BU objectives, but the latter is reflected and integrated into corporate performance. Support professionals must customize their services to satisfy BU needs rather than conform to the corporate objectives.

People argue about the demerits of decentralization as it tends to create virtually autonomous lords ruled by scattered kingdoms. There is a duplication of efforts and processes. If a group has five entities, it needs five sets of HR, IT, Finance and Procurement. The duplication of jobs promotes multiple solutions to similar and identical BUs.

Prior to the global crisis, some major property developers created a decentralized structure. They allowed entities to spend more money on support process activities. For instance, both corporate and entities have HR, Legal, Finance, IT and Procurement departments. Duplication resulted in enormous waste and created redundancies.

Today, global competition and shareholders’ mandate make the elimination of such redundancies imperative. The challenge is to combine the economies of centralization with the superior service and customization of the organizational structure but associated with decentralization. One way is the creation of shared services that are more effective.

Handy Hints:

• Decentralization allows staff to be more focused, accountable

• It, however, leads to job duplication resulting in redundancies

• Challenge is to create shared services that are more effective

Find out how empowerment creates efficient employees

Source: Dr. Pon Mohaideen Pitchai, Special to Jobs & Careers

The writer is a Dubai-based HR and Management Consultant