The Effective Executive – Centralization vs. Decentralization



Veteran, new and aspiring executives need methods to be successful in their organization. There are 1000s of leadership podcasts, videos, blogs, and articles but few authors address what to do or how to do it.

We have witnessed many executives who are efficient (doing things right), but few executives are effective (doing the right things). We believe this is misguided and aim to remedy the shortfall with executives.

This is the 27th episode of the Effective Executive podcast. In this episode, Tripp Babbitt explains how decentralization is more effective than centralization.  Download our Effective Executive Starter Kit.

Show Notes

The Effective Executive – Episode 27

Centralization vs. Decentralization

Austrian vs. Keynesian Economics

Theory X vs Theory Y

Doing Things Right vs Doing the Right Things



[00:00:00] This is the twenty seventh episode of the effective executive podcast and video for the effective executive YouTube channel.


[00:00:13] And in this episode, I want to talk about centralization versus decentralization. I want to kind of start big picture and then work down to the organization. And economically, you have to well, there’s there’s more than two.


[00:00:32] But I would just use the two primary ones talked about in the US are Austrian economics versus Keynesian economics. And even as an executive, I think it’s important to know what’s at work around you, especially in Europe, where things are more socialized and centralized and you go to countries like China and Russia, where it gets even more centralized. South America, a lot of centralization around things. So Austrian based Keynesians are kind of like we want to control things and you can control it through the Federal Reserve. Now, whether that’s good or bad, I’m not here to debate that right now. But in general, I don’t find control to be the right thing to do, even in organizations. But that’s the Keynesian mindset. So that’s why you had the Federal Reserve get to have smart people out there. It’s all that kind of mindset associated with it. Then there’s the Austrian side, which is just kind of letting the markets take care of free thinking, take care of the economics that are going on in a particular country. And you have certainly a lot more Keynesians.


[00:01:55] Now, when I was in school, I was only taught about Keynesian in the Chicago school, which is Milton Friedman, not quite as extreme as Keynes, but still believes that there needs to be some control in there. So this is kind of the different thinking that’s going on and.


[00:02:18] Some current events that really caught my eye are these powergrid problems and all of the central planning. Let’s start with California first and then we can move to Texas. I don’t know as much about the Texas piece with California. A lot of centralized planning around, you know, how much heat they’re going to need. What they can’t plan on is how much sunshine is going to be for the solar panels and how much wind they’re going to be able to get from the windmills and generating energy from there. And so what you get in central planning is you kind of get this, you get shortages, you get unintended consequences. And I’m not saying there are unintended consequences with decentralization, but I found especially in organizations, they’re not as severe as what you get when you have centralized planning. And there’s a lot of different reasons associated with that that we’ll talk about now.


[00:03:23] Another scenario, Mask-wearing. All right, so how have we feel about Masks? I you know, again, this isn’t a political. Channel four podcast or YouTube channel, so but we look at what’s happened in New York and California, very draconian types of measures, very centralized. You know, government is going to tell you what to do, what’s right and wrong. And then you look at places like Florida where it’s a lot of the personal decision that you have and association with taking care of yourself. And I always find the latter to be best for organizations, this decentralization. But you’ve got to have a purpose associated that your employees and your workers understand so that they can be successful and that Veerman understand they have the responsibility to do that. Now, these are two different, very different types of ways of managing things. And when we look at organizations and you look at the two primary things I think control or are involved with how an organization performs our motivation and control.


[00:04:40] So with regards to motivation, you have the theory X, the authoritarian. We talked about Frederick Taylor before in this podcast episode versus kind of the participative environment that Demming and others promoted for management. The theory why, if you will, Douglas MacGregor.


[00:05:04] So, you know, motivation wise, you’re going to you’re going to take to different ways of approaching that in this centralization, decentralization environment. Now, most organizations again, this is my observation, you may have a different view, is that most organizations are centralized. You know, there’s a lot of management controlling things or, you know, ancillary areas like I.T., the specialists, very tailor Ristic, very controlling type of thinking that management needs to be the one or the specialists need to be the one making all the decisions. I just have never found that to be the best way to go.


[00:05:55] And I encourage organizations. Obviously, what my whole method is about is, is getting moving organization, centralization, decentralization. I worked in Europe and Australia and Asia and South America. Different places where centralization is is very important. I mean, it’s the way they run their governments. Right. You know, you’ve got to be centralized to be socialist. You can be communist. We tell you what to do, centralized planning, those types of things. And the the formerly richest country in the world or a richest country in the world, the US, especially early on, was very decentralized in association with how they how they operated. Now, this didn’t happen till really Deming and others came along, but they were certainly less centralized than some of the things you would have going on in Europe at the time. So this gets into, you know, controlling things and telling people what to do versus working from purpose. So telling people what to do, very centralized. We’re going to write scripts. We’re going to policies are going to have rules. We’re going to, you know, discipline. You know, it’s all those types of things work versus working from a purpose, an understanding what that purpose is in the organization and workers making their own decisions about their own work. Two very different types of thoughts. People talk in terms of a spectrum sometimes, but to me, I find it truly one or or the other. They tend to polarize in organizations. And when you work from purpose, when your workers work from purpose and they have the responsibility and they’re decent and you have a decentralized organization, you’re going to find it for the same reason that you get mask wearers in Florida. They do it to protect themselves because they know what the risks are as opposed to the government coming in and telling them to wear masks or stay in or shut down restaurants or whatever the subject is. So but you have to be able to work from purpose by knowing what the purpose is. Right. And again, I don’t believe I find that centralized organizations are very.You know.


[00:08:35] Working to tell you what to do. They’re very concerned about doing things right, which makes you efficient, but it doesn’t make you effective. You get your purpose from studying your own organization from a synthetic standpoint. So I even think in terms of centralization is being very analytical thinkers versus decentralized decentralization, which is doing things right, are doing things. Doing right things as opposed to doing things right and doing the right things means that you need to understand from a synthetic standpoint what customers, what’s important to customers and gathering all that. Because once you understand what’s important to customers, you understand your purpose much better and you’re looking at the whole rather than just the pieces. So this is what I want to talk about this week. Go to the effective playlists, the ninety five method dotcom effective playlist, and you will find the difference between efficient and effective. But you can almost think in terms of centralized versus decentralized, too, because when you have people capable of making good decisions, no matter where they are in the organization, but especially on the front line and they’re making their own decisions, you’re going to find that working from purpose rather than telling them what to do is far more effective.


[00:10:16] And it’s less expensive for for a lot of reasons because you’re working from trust now. Somebody violates that trust. That doesn’t mean you just ignore it. But because if they didn’t understand the purpose, that’s one thing. If they purposely did something wrong, then it’s time to part ways. I would guess so, as opposed to telling people what to do all the time, because they’re always going to be waiting for you to tell them what to do next. If I work for a purpose, I know what to do. I know what my next action needs to be. So that’s it for this week, centralization versus decentralization, my methods are all focused on decentralizing your organization. It’s done in a way that doesn’t blow up the whole organization because people freak out when they think they’re losing control. If you’re moving from centralized to decentralized, they don’t like it, especially at the beginning, because they like their world that they had. And so executives, it’s a challenge associated with it. There is a better way to go about running their organization.

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