Decentralized Organization: A Complete Guide

Posted on  

March 1, 2022

Published by: Codemonk

And one of the core driving factors of Web 3.0 is blockchain and decentralization. Many companies have benefited from a decentralized management approach, including Johnson and Johnson, one of the oldest in the decentralized organization arena. It helps in scaling faster and brings other organizational benefits such as controlled costs and an even lower attrition rate. Want to know how? Read on!

What is a Decentralized Organization?

In textbook definition words, companies that have allowed the flow of decision-making authority on all levels are called decentralized organizations. Organizations with local offices and employees with decision-making powers are decentralized in standard terms.

Broadly, decentralization began at the Government level where state-level representatives were appointed who further had district and county level representatives. It has now trickled down to the organizational level. In India, the first significant step toward decentralization happened in 1992. 

Multinational conglomerates that have a high number of employees and have considerable business interests are the ones that use decentralization. It reduces decision-making pressure from the company's top management and helps develop leaders that can take the company forward in that particular region.

Additionally, it allows the administration to keep track of the competition they are improving in providing value to the customers. Decentralization offers enormous benefits leading to changes in business models and adapting to those changes.

Differences b/w Centralized and Decentralized Organizations

What exactly are the traits that differ between a conventional organization and a company based on the Web 3.0 ideology of decentralization? Here’s how: 



Pros and Cons of Decentralized Organizations

Now that you are aware of the differences between centralized and decentralized organizations, you should know what the pros and cons of adopting it are.

Pros of Having a Decentralized Organization

  • Organizations are self-sufficient 

With decentralization; the pressure is distributed on all levels. Hence, the absence of a team member does not impact the overall productivity a lot. Consequently, even the top management can take off days which means that the organization is self-sufficient.

  • Scaling is easier

Since the top management does not need to dive into the nitty-gritty details of the office operations of a particular location, scaling becomes easier. The command can easily hire capable local employees to handle day-to-day functions, which can help them to grow the business overall and not get stuck in micromanagement.

  • Faster decision-making

Decentralization gives autonomy to managers at all levels of the organization. It means that the employees do not need to wait for approvals from senior management before taking on a task. This helps in faster decision-making, which increases overall productivity.

  • Happier team members and business owners

The basic principle behind decentralization is to make employees at all levels capable and self-motivated. It means that they can find meaning and motivation through the work. This, in turn, keeps the team members and business owners happy.

  • Strengthening leadership skills

By giving the power to make decisions from their own experience and wisdom, leadership qualities are inculcated into every individual. This helps in building better leaders for tomorrow.

  • Subordinates motivation

When the employees know they are being valued and their skills developing in an all-round manner, their motivation will increase. Furthermore, it also helps increase the employee retention rate for the business.

  • Efficient communication

Since the power to make decisions flows at all levels; the communication channels become more transparent and efficient for everyone. This improves clarity around tasks and helps form relationships that are not possible with a hierarchical structure of a centralized organization.

Cons of Having a Decentralized Organization

  • Poor leadership can damage a company’s reputation 

While some are born leaders, some have to learn it. And during this learning curve, they can take decisions that are detrimental to the company. While the mistake can be corrected, the damage to the company’s reputation is more difficult to remedy.

  • Communication barriers

It is often said that too many cooks spoil the broth. With a decentralized organization, too much autonomy often results in communication barriers. This happens because everyone has their methodology and ideology to get the work done, which can often cause ambiguity about what way to take. 

  • Difficulty collaborating 

Despite the improvement of communication channels, scheduling barriers still arise. Now, employees have to run in circles to check the availability of every individual to get work done.

  • Team-wise expenses increase

To handle operations of various teams at every level, a manager is required. This means hiring costs and overall operational costs also increase.

  • Service functions can waste resources

To serve employees at all levels, separate teams are often required. This can cause a surplus of resources and increase redundancies.

For instance, centralized organizations often use the same accounting and finance team for all employees, which helps get done more with fewer resources.

How Blockchain and Decentralized Organizations are Disruptive?

One feature that has spurred the decentralized spree globally is the advent of blockchain technology. While it gained traction from 2008 onwards by the efforts of Satoshi Nakamoto, who launched Bitcoin, its history traces back to 1991 when Stuart Haber and W. Scott Stornetta envisioned it.

The core idea behind blockchain is not to use a central location to store all the information. Instead, it uses a group of computers on a network on which data is distributed. The same principle was then adapted to fit organizations which gave rise to virtual machines, remote working, and what we now call decentralization. 

From the start of Bitcoin, many other cryptocurrencies came to life. After Bitcoin, Ethereum came and was funded via crowd sale. Cryptocurrencies and crypto tokens have helped increase the number of transactions today and are being used by decentralized organizations to build assets for Web 3.0.

Examples of Decentralized Organizations 2022

While most companies are still transitioning towards a decentralized structure; some have already done it. The biggest ones are

Johnson and Johnson

Everyone knows Johnson and Johnson baby products, but they have expanded into the pharmaceutical business due to their decentralization model. They have scaled to a level with 130,000 employees globally as a benefit of this. 

In 2022, Johnson and Johnson were ahead of the curve, with the structure in place since 1999. However, the former top bosses have said it does allow their products to be more customer-centric and their brand more connectable. The reasons they use a decentralized structure are 

  1. To better understand and connect to the consumer and the workforce
  2. To better understand and appeal to the govt. and marketplace in a location
  3. To better mitigate the challenges and problems that appear in that location
  4. To reduce the pressure of the management sitting in the U.S.

Eventbrite

Eventbrite has already established itself as the prime event management, creation, and ticketing brand. They have employed a decentralized structure to ensure that they perform admirably well globally. 

They created over 4.7MM events in 2019 from over 949,000 event creators with this structure. They choose the decentralized structure because many of their users perform multiple functions:

  1. Creators work as managers and promoters, which helps retain autonomy and high standard for the overall event management experience
  2. It helps them target their customers better for upcoming events 
  3. Localizing the management helps identify, connect with, and follow up with customers better

Conclusion: Is Decentralized Organization the Future?

So, is decentralization the future? Absolutely! While it might seem like a costly investment, it allows the company to scale faster, become more customer-centric, inspires self-sufficient organizations, and helps in increasing employee satisfaction. Hence, the pros far outweigh the cons to be overlooked even in 2022. 

Hence, if you are looking for an organizational structure that can help you and your employees to grow, decentralization might be the answer you are looking for.


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