Editing Decentralization (section)

== In the organizational structure of a firm ==

In response to incentive and information conflicts, a firm can either [[Centralisation|centralize]] their [[organizational structure]] by concentrating decision-making to upper management, or decentralize their organizational structure by delegating authority throughout the organization.<ref>{{cite journal |last1=Ouchi |first1=William G. |title=Power to the Principals: Decentralization in Three Large School Districts |journal=Organization Science |date=April 2006 |volume=17 |issue=2 |pages=298–307 |doi=10.1287/orsc.1050.0172 }}</ref> The delegation of authority comes with a basic trade-off: while it can increase efficiency and information flow, the central authority consequentially suffers a loss of control.<ref>{{cite journal |last1=Zábojník |first1=Ján |title=Centralized and Decentralized Decision Making in Organizations |journal=Journal of Labor Economics |date=January 2002 |volume=20 |issue=1 |pages=1–22 |doi=10.1086/323929 |s2cid=222328856 }}</ref> However, through creating an environment of trust and allocating authority formally in the firm, coupled with a stronger [[rule of law]] in the geographical location of the firm, the negative consequences of the trade-off can be minimized.<ref>{{cite journal |last1=Aghion |first1=P. |last2=Bloom |first2=N. |last3=Van Reenen |first3=J. |title=Incomplete Contracts and the Internal Organization of Firms |journal=Journal of Law, Economics, and Organization |date=1 May 2014 |volume=30 |issue=suppl 1 |pages=i37–i63 |doi=10.1093/jleo/ewt003 }}</ref>

In having a decentralized organizational structure, a firm can remain agile to external shocks and competing trends. Decision-making in a centralized organization can face information flow inefficiencies and barriers to effective communication which decreases the speed and accuracy in which decisions are made. A decentralized firm is said to hold greater flexibility given the efficiency in which it can analyze information and implement relevant outcomes.<ref>{{cite journal |last1=Aghion |first1=Philippe |last2=Bloom |first2=Nicholas |last3=Lucking |first3=Brian |last4=Sadun |first4=Raffaella |last5=Van Reenen |first5=John |title=Turbulence, Firm Decentralization, and Growth in Bad Times |journal=American Economic Journal: Applied Economics |date=1 January 2021 |volume=13 |issue=1 |pages=133–169 |doi=10.1257/app.20180752 |s2cid=234358121 |url=http://nrs.harvard.edu/urn-3:HUL.InstRepos:33111765 |hdl=10419/161329 |hdl-access=free }}</ref> Additionally, having decision-making power spread across different areas allows for local knowledge to inform decisions, increasing their relevancy and implementational effectiveness.<ref>{{cite journal |last1=Leiponen |first1=Aija |last2=Helfat |first2=Constance E. |title=Location, Decentralization, and Knowledge Sources for Innovation |journal=Organization Science |date=June 2011 |volume=22 |issue=3 |pages=641–658 |doi=10.1287/orsc.1100.0526 }}</ref> In the process of developing new products or services, the decentralization enable the firm gain advantages of closely meet particular division's needs.<ref>{{Cite book |last=Schilling |first=Melissa A. |url=https://www.worldcat.org/oclc/929155407 |title=Strategic management of technological innovation |date=2017 |isbn=978-1-259-53906-0 |edition=5th |location=New York, NY |oclc=929155407}}</ref>

Decentralization also impacts [[human resource management]]. The high level of individual agency that workers experience within a decentralized firm can create job enrichment. Studies have shown this enhances the development of new ideas and innovations given the sense of involvement that comes from responsibility.<ref>{{cite journal |last1=Bucic |first1=Tania |last2=Gudergan |first2=Siegfried P. |title=The Impact of Organizational Settings on Creativity and Learning in Alliances |journal=M@n@gement |date=2004 |volume=7 |issue=3 |pages=257–273 |doi=10.3917/mana.073.0257 |hdl=10453/5995 |hdl-access=free }}</ref> The impacts of decentralization on [[innovation]] are furthered by the ease of information flow that comes from this organizational structure. With increased knowledge sharing, workers are more able to use relevant information to inform decision-making.<ref>{{cite journal |last1=Foss |first1=Nicolai J. |last2=Laursen |first2=Keld |last3=Pedersen |first3=Torben |title=Linking Customer Interaction and Innovation: The Mediating Role of New Organizational Practices |journal=Organization Science |date=August 2011 |volume=22 |issue=4 |pages=980–999 |doi=10.1287/orsc.1100.0584 |doi-access=free }}</ref> These benefits are enhanced in firms with skill-intensive environments. Skilled workers are more able to analyze information, they pose less risk of information duplication given increased communication abilities, and the productivity cost of multi-tasking is lower. These outcomes of decentralizion make it a particularly effective organizational structure for entrepreneurial and competitive firm environments, such as [[Startup company|start-up companies]]. The flexibility, efficiency of information flow and higher worker autonomy complement the rapid growth and innovation seen in successful start up companies.<ref>{{cite journal |last1=Burton |first1=M. Diane |last2=Colombo |first2=Massimo G. |last3=Rossi-Lamastra |first3=Cristina |last4=Wasserman |first4=Noam |title=The organizational design of entrepreneurial ventures |journal=Strategic Entrepreneurship Journal |date=September 2019 |volume=13 |issue=3 |pages=243–255 |doi=10.1002/sej.1332 |s2cid=201351323 }}</ref>