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Say the word “governance” and what springs to mind? 

For a lot of people, the first thing is “bureaucracy”. Some central body to define a thick manual full of policies. Endless reviews and compliance checks. Long-winded approval processes. 

The next thing they think about is finding ways to bypass all the controls so they can actually get some work done.

It doesn’t have to be that way...

Governance is about making good decisions, ones that balance the priorities and demands of multiple different stakeholders. Tangling everyone up in red tape rarely meets anyone’s needs. 

The red tape simply emerges because it’s a tough balancing act and we make poor trade-offs.

One of the classic problems of governance is balancing the benefits of central versus devolved oversight. Central oversight makes it easier to ensure that policies are interpreted and applied in a consistent way across the organisation. 

It provides a single point for managing quality and standards. It can help optimise utilisation of scarce skills and resources – we put them all in one place, where they can be managed carefully and deployed in a way that aligns to corporate priorities.

Most of all, central governance gives the illusion of control, it lets corporate executives feel like they can make things happen their way. That helps them sleep at night.

Devolved oversight, on the other hand, pushes decision-making to the periphery, where people are more closely attuned to local circumstances and individual customer needs.  

There’s no long chain of command, so decisions can be made faster. But we may not be able to bring so much specialist expertise to bear, and different units may start to make inconsistent or even conflicting decisions.

Devolved governance can be a little scary. Things move quickly, and not always in the way you expect.  Not so good for sleep, but in an unpredictable world it might just be the only way to survive.

Consistency. Quality. Efficient use of specialist expertise and local knowledge. Alignment to corporate and customer needs. Speed of decision-making. These are all good goals. The problem is finding the point that best balances all perspectives.

There is no simple answer here: that point will be different in every organisation.

I find it often helps to divide the problem into separate concerns. For example, it can help a lot to think about who defines policies versus who implements them.  

Map this onto a two-by-two and you have four options:

  • Define policy centrally; implement it centrally.  
    The fully central model: one team does everything. They define policy and standards, then do all the work in a way that complies. We can manage our specialist skills from this central pool. Consistency is maximised.
  • Define policy centrally; implement it locally.  
    A central team (probably smaller than above) still defines policy, but it's implemented locally. We’re now bringing some local knowledge into the picture, but it’s tempered by the central policy to build consistency for the things that need it.  

    Skills are spread between the centre and the periphery. This may sacrifice some nominal efficiency, but it may also help spread knowledge across the organisation.

  • Define policy locally; implement it locally.  
    Every unit does it’s own thing. Some people call this anarchy, but it can be very effective in some situations. If different regions have very different markets, for example, then local knowledge trumps global consistency.  

    Likewise, a unit that’s researching new products might want to explore multiple independent paths before committing to a single standard.

  • Define policy locally; implement it centrally.  
    This feels a little odd at first – every unit defines its own standards, then pushes them to a central team for implementation?  

    But that’s exactly how a lot of outsourcing works: the customer sets policy and the vendor’s team handles the details, often for multiple customers.

Again, there are no fixed answers, and each of these approaches can work in the right circumstances. And they’re points on a continuum.

You can devolve some decisions and not others. Or you can consult locally before deciding centrally. And so on.

Finally, the balancing point doesn’t need to be static. You could move from devolved to centralised as standards stabilise in a new market, for example.  

You could even rotate between the two poles in order to transfer knowledge: people bring knowledge from the field and share it when they centralise; they take specialist skills and understanding of organisational objectives back out into the field when they decentralise.  

Few organisations are smart enough to do this consciously, but it might be just about the only real benefit of most corporate reorganisations.

Graham Oakes

Published 1 July, 2011 by Graham Oakes

Graham Oakes helps people untangle complex technology, processes, relationships and governance. He is contributor to Econsultancy.

43 more posts from this author

Comments (4)

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Dale Emery

A friend of mine worked at a company that, every four or five years, switched between centralized and business-unit-focused. They understood that each orientation had its advantages and disadvantages, and their strategy was to get good at one orientation, learn from it, and incorporate their learnings into the other orientation.

I thought that was brilliant. I'd seen numerous other companies switch from one orientation to the other, based on the overblown conclusion that "this orientation is clearly broken," and the equally overblown expectation that "the other orientation will fix things once and for all." And of course, all of this was accompanied by cynical cries of "But we tried that before and it didn't work!" Alas, those companies never considered the opportunity to learn and grow, as my friend's company did.

over 5 years ago

Avatar-blank-50x50

Dale Emery

A friend of mine worked at a company that, every four or five years, switched between centralized and business-unit-focused. They understood that each orientation had its advantages and disadvantages, and their strategy was to get good at one orientation, learn from it, and incorporate their learnings into the other orientation.

I thought that was brilliant. I'd seen numerous other companies switch from one orientation to the other, based on the overblown conclusion that "this orientation is clearly broken," and the equally overblown expectation that "the other orientation will fix things once and for all." And of course, all of this was accompanied by cynical cries of "But we tried that before and it didn't work!" Alas, those companies never considered the opportunity to learn and grow, as my friend's company did.

over 5 years ago

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Lean Consultant

All of us in the nonprofit sector have heard the drumbeats over the last few years accompanying the chants of, "Merge! Merge! Merge!" That pundits outside the sector were saying it, we could brush aside as the rantings of somebody who didn't know how efficient and cost-effective most nonprofits really are, but when our funders - including government at all levels - joined in, many of us took it seriously and at least explored mergers, whether they were completed or not.

over 5 years ago

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plumbing

I agree that central governance gives the illusion of control. I personally observe it when I read books about society.

over 5 years ago

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