What are decentralized organizations?

Apr 05, 2024

As remote work gains more and more credibility in the corporate world, executives everywhere are beginning to understand the benefits of a decentralized organizational structure.

Especially for C-suite executives such as the CFO, finance teams not only benefit from a time-saving decentralized organization setting but also learn the crucial skills of ownership and autonomy that come along with it. 

While it’s great to offer more independence and flexibility to your finance teams, is it the ideal path to create a custom CFO organizational structure? How would you create a decentralized finance team that works seamlessly without close supervision?

Decentralized organization: What is it?

A decentralized organizational structure allows middle and low-tiered managers or team members to make important business decisions, delegated by the senior-level executives of a company.

As opposed to a centralized structure where decision-making power is strictly restricted to the C-suite or senior management level, a decentralized management structure breaks down the hierarchical system and includes even low-level employees in their major decision-making process.

A decentralized form of organization can follow either a traditional system of multiple compliance checkpoints, or a liberal form of decentralized management structure that allows more autonomy to those team members that are close to stakeholders.

If your company is facing these situations, it might be a good time to consider a more decentralized organizational structure:

• Dynamic marketplace demanding faster business development and alteration.

• Cutthroat competition and a fast-paced global market for your product or service require even faster decision-making.

• Companies owning a huge retain chain or franchise empire spread across geographical locations worldwide that cannot be wholly monitored by upper management and therefore require a decentralized management structure.

• Companies with a dedicated and highly personalized form of customer service with multiple points of contact (POCs) require immediate decision-making authority.

How decentralization in an organization works?

Decentralization can appear in varying degrees in a company’s organizational structure.

As more and more companies adopt remote work, flexible schedules, and fluidity in management practices, it is becoming increasingly evident that no company can ever be either fully centralized or decentralized anymore.

The degree of decentralization in business depends upon your company’s size, culture, and business model.

Franchise-based companies function as a mix of centralized and decentralized organizational structures.

While there is more autonomy given to store owners in terms of hiring and operations, certain aspects of business such as product development and marketing are reserved for senior management.

As opposed to that, retail chain companies exercise far less decentralization since there is no avenue for shared risk appetite, unlike a franchise where risk aspects can be shared between a company and its franchise owner.

Some multinational corporations can work well as decentralized business models, with multiple units functioning autonomously.

However, it is still quite difficult to introduce a more extreme level of decentralization on a larger scale since they are so deeply entrenched in the traditional centralized form of organization.

Decentralization can work extremely well for medium-size enterprises, allowing employees to pursue projects based on creativity and passion, but it will need to adapt itself to ensure operational efficiency and alignment with business goals as the business grows.

Startups can be considered too small in size to be qualified for a decentralized business structure, but it is prudent to plan and envision how the structure may evolve in tandem with the business.

A decentralized organization works just like an open floor plan in a startup and has the potential to become an incubator for massive creativity, innovation, and ownership for your team.

Challenges CFOs face while implementing decentralization

As is with everything, a decentralized organizational structure comes with its own set of challenges.

Apart from just being difficult to implement in large multinational corporations that are highly accustomed to a more centralized scaffold, decentralization can pose quite a few challenges:

Chances of poor leadership

The entire premise of decentralization in business depends upon the level of responsibility and ownership qualities that middle and lower-level managers possess.

Decentralized organizations under poor leadership can spell disaster for business growth and revenue.

As a CFO, finance teams cannot afford to make this mistake as a single financial quarter spent in poor leadership can take an even longer time to fix.

Communication problems

While decentralization in business promotes creativity and diversity in opinion, it can also pose a threat to company culture with team members clashing over differences in opinion, workload, and schedules. 

Formation of department silos

While functioning as an independent entity within a business is the crux of what a decentralized organization aims for, having too much autonomy can also end up creating departmental siloes within the organization.

This can end up in the finance team experiencing difficulty collaborating with other departments, rendering the entire decentralized organizational structure counterproductive.

Expensive teams, wasteful functions

A decentralized organization has to invest in incentivizing managerial positions to encourage autonomy and ownership.

This means that companies also have to spend more on separate service functions for each department such as a dedicated HR since decentralization in business could result in siloed structures.

All of these costs add up, making decentralization an expensive process, as opposed to a centralized organizational structure.

How CFO’s can set up a decentralized finance team?

While there are some issues with a decentralized organizational structure, the pros outweigh the cons.

As a CFO, the organizational structure must be decentralized by you to ensure that your finance team is self-sufficient, independent, and efficient in their decision-making prowess.

Here’s how you can set up a decentralized finance department organizational structure:

1. Make ownership a core value

What is a decentralized organization if not a synonym for ownership? Make decentralization in business a corporate mantra that you as a CFO imbibe and impart.

When you make decentralization a core value not just for business development but also for individual growth, you foster an environment where employees are conditioned to take accountability for their own tasks and KPIs as well as the team from the very beginning.

For starters, try incorporating decentralization as a primary value in your finance team.

2. Practice healthy communication

Healthy communication is the backbone of a decentralized organization.

Without proper back and forth of information, team members can feel disconnected from each other since they are busy taking ownership of their own projects and tasks.

This can create unyielding and defensive behavior among team members.

Good communication not only allows team players to have a respectful response towards each other’s opinions, but also encourages collaboration, direct channels of information, and a helpful demeanor.

You can do so by clearly demarcating roles and responsibilities for each team member.

By assigning tasks and responsibilities best suited to every person’s strengths, you are building a team that works cohesively towards a united goal whilst maintaining their individuality.

3. Invest in skill-building & mentoring

CFOs everywhere need to actively invest in skill-building opportunities for their finance team members that will not only help them in developing your company but actively further their individual careers as well.

A decentralized organizational structure is the most conducive environment for your finance team.

By taking ownership of decisions that were earlier made by senior-level management or a C-suite executive such as yourself, you are providing your finance team with the chance to prove their mettle.

However, you need to be actively involved in guiding your team through uncharted territories.

Lend them your expert insights and advice and build their skillset.

Offer mentoring sessions either with yourself or find someone from the company or externally to continually impart guidance that makes a difference.

4. Build cross-functional teams

To avoid the pitfalls of decentralization, namely siloed departments and wasteful service functions, invest in building cross-functional teams that consistently learn from each other and build a knowledge base for themselves.

Instead of the sales department resorting to creating erroneous budgets all on their own, impart financial expertise by assigning a finance team member to collaborate and formulate a budget reporting system that works for the sales execs.

This puts your finance team into new and exciting roles, building their skills whilst promoting cross-functional collaboration.

5. Automation for effective decision-making

To build sharper decision-making skills throughout your finance team, your employees need tools and systems that actually facilitate smarter decision-making.

With the rapidly increasing popularity of remote work structures, more and more CFOs are investing in communication tools to enable a smoother flow of information.

This alone isn’t enough, however - CFOs need to efficiently decentralize by automating processes that can benefit from limited manual interaction and therefore free up your team to focus on decisions that require their full attention.

A great way to do that would be to empower your finance team with an expense management software like Volopay, that eliminates manual accounting and paper-based invoice and subscription payments, resulting in a seamless, instant payable solution with corporate credit cards to make time-consuming manual reimbursements a thing of the past.

Implement a healthy company culture by building a decentralized organization

Decentralization is never a one size fits all solution. It is an unending process that needs to be finessed regularly to ensure that it is scalable and beneficial for the business.

The goal of decentralization for you as a CFO is to build a finance team that, at the end of the day, is better and smarter than when they embarked on this structure.

A decentralized organizational structure is soon going to be the norm in this rapidly transforming remote-friendly corporate landscape.

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