When can you decentralize, and when do you need to centralize decision rights? Conversation with Professor Nicholas Argyres (Part 2)

Finding the right balance between centralization and decentralization is a key challenge for leaders of large firms.

If you centralize, you slow down decision making (more levels of approvals are needed), remove incentives for performance at the divisional level, and reduce the ability to adapt to local customer needs.

If you decentralize, you may speed up decision making, create stronger incentives, and improve the ability to react to changes. But you also make it more difficult to achieve coordination and share resources across the divisions or business units in the firm.

This is the second part of my interview with professor Nicholas Argyres, a leading expert on the topic.

The starting point for our conversation is an article that Argyres wrote some years ago, where he compared General Motors, which had a decentralized structure with 11 divisions, with IBM, which had a more centralized structure and 5 divisions.

You can listen to the conversation by using the podcast player below. It lasts for about 10 minutes.