Falling communication costs are enabling companies to decentralize their decision-making structures. Now they must seek a balance between empowerment and control.
Are you stifling innovation and creativity by trying to micromanage? Or are you operating your organization as many autonomous fiefdoms and missing the benefits of being one company? Should you give more autonomy to the people who work for you? Or perhaps you feel you should take more control and show “real” leadership?
Nagging questions like these indicate that some of the most difficult problems for managers are those of exercising control. A central issue for organizations in the twenty-first century will be how to balance top-down control with bottom-up empowerment.1 For example, recent business rhetoric has focused so much on the importance of “empowering” workers that the term has become an almost meaningless cliché. Is the talk of empowerment just a fad? Or are fundamental changes making decentralized control increasingly desirable?
Our research suggests that the dramatically decreasing costs of information technology (IT) are changing the economics of organizational decision making, with the result that decentralized control is becoming more desirable in many situations. Moreover, our very notions of centralization and decentralization may be incomplete. When most people talk about decentralized organizations and empowerment, they mean relatively timid shifts of power within a fairly conventional, hierarchical structure. But these forms of empowerment go only halfway toward what is possible. To fully exploit the possibilities of new information technologies, we need to expand our thinking and see radically decentralized organizations — the Internet, all kinds of markets, and scientific communities, for example — as new models for organizing work in the twenty-first century.
Our research also suggests that a simple pattern underlies many future changes. As improvements in technology reduce communication and coordination costs, the most desirable way to make decisions moves through three stages. In the first stage, when communication costs are high, the best way to make decisions is via independent, decentralized decision makers. In the course of history, most economic decisions have been made this way — by people in largely independent tribes, villages, and towns.
As communication costs fall, however, it becomes desirable in many situations to bring remote information together, where centralized decision makers can have a broad perspective and therefore make better decisions than isolated, local decision makers can. The economic history of the twentieth century has been largely the story of this centralizing of decision making in large, global corporations.