Knowledge Management Systems - INF 385Q    [download PDF]

Benefits of decentralization

The decentralized structure of outsourcing can offer both economic and non-economic benefits. Economic benefits can be reached because services or tasks are not controlled by a centralized control structure, but are guided by market factors to determine cost and levels of service. Additionally, outsourcing can be extremely flexible, thereby reducing opportunity costs and adding strategic value. In companies working with short product life cycles, critical components, resources or expertise can be obtained faster than could be developed internally. Through outsourcing, a company can adapt quickly by accessing areas of expertise that are not immediately available to the organization internally and that would otherwise be costly and time consuming to develop or purchase. An exceptionally successful example of this can be seen in the Toyota automobile company (Watts, 2003). Toyota consists of approximately two hundred different companies that are integrated to supply all the parts and expertise to create their cars and trucks in an extremely efficient manner. For companies involved in projects with short life spans, specific combinations of skills and people can be utilized only for the duration that they are needed (Malone, 2004). This flexibility also allows organizations to access a higher level of knowledge and expertise and to be more competitive than might normally be affordable on a full time basis.

Decentralization offers benefits to employees as well. Malone (2004) describes decentralized structure as one where "power, ownership, and initiative [are] distributed throughout a whole market" (p. 74). The freedom and autonomy of working in a decentralized way, where employees maintain a greater level of control over their own business, provides a more enjoyable work environment. This increased control and sense of ownership often creates additional benefits. People are more motivated by the increased ownership of responsibility. Additionally, employees feel in more direct competition with other providers of the same service, which leads to increased innovation and levels of specialization. These benefits are subsequently translated directly to the company that utilizes this outsourced service.

There are also strategic benefits from being geographically distributed. Overseas outsourcing in multiple time zones for example, offers the potential for a 24-hour workday without having to pay for overtime. And even a less global distribution can provide reduced impact from regionally specific problems such as a natural disaster or a local system outage.

Even with all the optimistic possibilities, a decentralized organization is not always desirable. Some organizations that require the ability to coordinate large-scale systems with relatively little communication may be better suited to a hierarchical structure. The classic example of this is military organizations where a clear chain of command and rapid response times are critical (Malone, 2004). Also, companies that have long product life cycles, long life spans, or working on difficult or complex problems may not be well suited to decentralization.

Figure 1 (Malone, 2004, p. 113)

Figure 1 - Factors to consider in choosing whether to 
		decentralize a given decision

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