Making Better Organizational Decisions

Important decisions are made in organizations every day.  Indeed, every day decisions are what shape, make or break organizations.  Organizations that promote environments that foster collaboration, trust, empowerment and swift execution make better decisions and can dramatically improve the overall performance of a company.  Organizational structure plays a very important function in promoting this type of decisional environment.  Most often than not, a flatter or decentralized organization can make decisions at a much faster but yet controlled rate than those organization that rely more on hierarchical or vertical / command type structures.  It is important to note that although speed in decision making and prompt implementation is important, decisions must also be carefully analyzed and controlled.  Thus, companies that not only tend to be flatter in structure but develop systems of decisional analysis across various players and departments in the organization tend to not only increase the rate of execution of decisions but also make better decisions for the organization as a whole.

Over the past couple of decades, major corporations in America and the rest of the world have flattened their organizations or "decentralized" them.  Decentralization is the means of delegating authority or decision making ability to the lower levels of the organization.  Consequently, for a decentralized system to function it must present with fewer tiers of hierarchy, encompass a wider span of control and develop systems in where ideas and information are flowing from the bottom of the organization up.  This wider spans of control, reduces the number of managerial tiers and hence give the organization a flatter structure.  Examples of these types of organizational structures tend to include small to medium size entrepreneurial companies.  However, in order to compete with their smaller and leaner counter parts larger fortune 500 companies have also started to operate within flatter domains.  Decentralization tends to drastically increase the speed of decision making processes and implementation of new ideas which in turn lead to faster and better innovation of products or services.  Such innovations lead companies to come up with products or services that are first to enter markets and thus help them develop strong competitive advantages.  

Contrary to a "flat" organizational structure, in a centralized or "vertical" type of organizational structure, decisions are made exclusively by top management and as a result decisions flow down through various tiers of the organization in the form of pre - set policies that must be implemented and executed by middle management and the rest of the workforce.  In other words the decision made by top executives (or the company "strategists") are not to be questioned by subordinates but merely followed and implemented.  Employees may have a certain degree of latitude when implementing the decisions but their span of control is very limited.  Examples of these type of organizations include many governmental agencies, university systems and large and complex for profit organizations that boarder the line of monopolies or oligarchies.  In this type of organizational structure, decision making process tend to be slow and often viewed from only the top management's perspective.  As a result, good ideas from various areas of the organization may never make it to the few decision makers in the company and consequently innovation suffers.  Furthermore, decisions also tend to get lost in the bureaucracy and in turn are implemented at a much slower rate compare to those of a decentralized system.  Once again, this may lead to implementing an idea or innovation when it is too late or the competition may have already gained a marked competitive advantage within the market place.

The idea of information flowing from the bottom up is extremely important and helpful in the decision making process.  Often times, employees that are in direct contact with customers will tend to offer more efficient and effective decisions and ideas than those that are removed from the front lines.  In a decentralized organization, solutions to problems and innovative ideas tend to flow to the top in a much faster fashion than in centralized structures.  This allows for leaders of an organization to conjure real time data and information that is relevant to the customer base at a much quicker pace and thus make decisions that are more based in reality and customer value.  Too often, organizations delay information flow by adding unnecessary layers of management and this can dramatically hinder decision making agility and the perception of reality in a company.  This usually tends to happen when organizations make the leap form a small entrepreneurial company to medium size / big companies.  There is however a natural development of this particular progression that must be understood.  Once companies tend to break the "small business" category and reach the medium size / big business realm, systems and management layers must be put in place to counteract the chaotic growth rate that tends to develop during this transition.  Although this is a necessary evil for every company that tends to grow rapidly, it is very important that organizations realize early in this stage that over reliance of systems and hierarchies can radically decrease the pace of decision making, idea generation and innovation.  The concept of systems and management must be carefully balanced as a company grows with the precise level of hierarchies and policies so as not to become slow, bureaucratic and eventually so obsolete that it cannot longer compete in the market place against smaller and leaner new players emerging in the market.

Removing layers of hierarchy may seem like a logical step towards becoming flatter and make faster and better decisions.  Taking a look at the management hierarchical structure (i.e. area, regional and divisional managers; VPs'; etc) and trimming up layers may be part (or not) of the solution; but mere restructuring will not lead to the type of organization that can make accurate and prompt decisions across its functions.  In order for this to happen, the company must develop a culture of collaboration and ownership within its departments.  Hence, it is imperative that employees at every level are engaged in the decision making process and that middle management is empowered with the tools and resources to execute decisions.  Does this mean that a Barrista at Starbucks will be involved in the decision process of closing down 500 stores across the US or enter the Chinese market?  The obvious answer is no.  But, Barristas can tell us crucial information regarding their particular store and demographics (i.e. why did Mrs. Jones stop coming to the store?  Is she now buying instant Starbucks Coffee at the local Supermarket?  Perhaps 5 key store customers have told her that they are going to McDonalds because they like the Frapucinos there far better).  A Barrista for example may also figure out that customers are craving iced tea and lemonade products more over coffee in the heat of summer.  This is crucial information that sometimes software analytical tools cannot provide.  If area or regional managers are not collecting these data or not communicating these results to senior management teams, executives may start making faulty decisions on important areas such as product placement or product development that may lead to substantial erosions in market share.  But in order for the communication flow to occur, employees must feel a sense that they are heard - in other words a sense of empowerment.

In a truly decentralized structure, upper, middle and lower level management teams are expected to make decisions of their own within a much wider span of control when compared to centralized organization.  Based on information flow that runs from the bottom - up, upper level executives and managers can generate better strategies and direction for the company.  When this happens, leaders at the top level have a better understanding of what goals need to be accomplished for a given strategy.  When the "what" has been figured out, a decentralized structure delegates the "how" to a person or team that is responsible on executing on an initiative.  In a well managed decentralized structure, managers and teams are supported with the proper resources, collaboration, and feedback and are also encouraged to be creative when accomplishing their goals.  This culture will permeate from the top down so that every employee in the organization is aligned with the company's goals and knows what needs to be accomplished.  Managers empower employees to come up with creative solutions, ideas and innovations to solve problems and attain goals.  It is precisely this type of direction, empowerment and collaboration that when combined with the right level of systems and hierarchy truly give a flatter structure a competitive advantage over a vertical organizational structure.

As we have seen, flatter organizational structures speed up the decision making processes of a company leading to better idea flow and innovation.  It is crucially important that decisions are not only reached in a swiftly manner but that they are well calculated and executed properly.  I often hear companies that go on downsizing sprees or "reorganizations" for the sake of better and faster information flow and decision making speed.  Such companies claim that their organizations have become too slow to compete and as a result need to be "flatter".  But flat will be of no use in improving decision making speed and innovation if it's not properly aligned with systems that foster the collaboration of ideas across all functional teams.  Lastly, for flat organizations to be successful implementing new ideas and make better decisions, management must empower employees with the proper resources, get out of their way and make them equally accountable for results.