What springs to mind when you see the word “governance”? For many people, it’s about central control – creating a clearly defined authority who sets and enforces policy, defines priorities, etc. It also has overtones of bureaucracy – that policy is probably contained in some thick manual, and enforcement means an endless round of reviews, approval processes and compliance checks.
The next thing people usually think about is finding ways around the controls, so they can actually get some work done. It doesn’t have to be that way.
Governance is simply about making good decisions, ones that balance the demands of multiple stakeholders (customers, regulators, shareholders, etc) while aligning to overall organisational priorities. Tangling everyone up in red tape doesn’t achieve this: the red tape just emerges because it’s a tough balancing act and we sometimes get it wrong.
One place where we often get it wrong is in the balance between central and devolved oversight. Many people conflate central oversight with improved control. Sometimes this is true – central oversight generally makes it easier to ensure that policies are interpreted and applied consistently across the organisation, for example. It also makes it easier to allocate and manage specialist or scarce resources – we put them all in one place where we can monitor them carefully.
But often this sense of control is illusory. People at the periphery can have good reasons to find ways around the controls. For example, they’re often more aware of local circumstances and individual customer needs. They’re probably under pressure to make rapid decisions.
It may make a lot of sense to sacrifice a little overall consistency and efficiency of resource utilisation in order to achieve faster decisions that are better aligned to individual customer needs. The truth is that many executives find devolved governance scary – things move quickly and not always in the direction they expect. They’d rather hang on to their illusion of control. It helps them sleep at night.
Stand back from this and it’s clear that there’s no simple answer, no optimal trade-off between central and devolved control that will apply to every organisation and in every set of circumstances. We need to find the balance between speed, efficiency, consistency and alignment to local needs that works for each particular case.
How do we do this?
I find it helps to think about the problem from different perspectives. For example, I like to think about who will define policy versus who will implement it. Each of these can be done centrally or locally, giving four options:
- Central control. One team does everything – they define policy and standards, then do all the work in a way that complies. We can locate all our specialist skills in this single team, and manage everything in a way that maximises consistency of decision-making within that team.
- Local implementation. We still have a central team to define policy, but then leave it to people in local units to work in a way that complies. This means we have to think about mechanisms to enforce compliance and consistency, but that’s offset by the benefits of bringing greater local knowledge to bear on each decision. This model spreads skills between the centre and the periphery, which may sacrifice some nominal efficiency, but may also help diffuse knowledge across the organisation.
- Anarchy. Every unit does its own thing – it defines local policy and then implements it. Many organisations recoil from this model, but it can be highly effective in some situations. If market conditions and regulatory concerns vary widely across regions, for example, then local knowledge trumps global consistency. Or units which are working with immature technology may want to explore multiple independent options before committing to a single standard.
- Local policy. Does it ever make sense for every unit to define its own standards, then to push all the work to a central team for implementation? Well, yes. That’s how a lot of outsourcing works – multiple customers each define how they want things done (e.g. calls answered), and a single vendor sets up things so its people can deliver against all these standards. It may make sense in other contexts too.
Each of these approaches can work in the appropriate circumstances. Consider them as points on a continuum and the range of options opens up further – you can consult locally before deciding centrally, for example, or you can devolve some decisions while centralising others.
Finally, the balancing point needn’t be static. Organisations often move from devolved to centralised control as standards stabilise across different markets, for example. You could even cycle between central and devolved control in order to transfer knowledge – people bring knowledge from the field and share it with each other when they centralise, then take common understanding of corporate context out to the field when they decentralise. I doubt many organisations are smart enough to do this consciously, but it might be the main benefit they get from their frequent reorganisations.