Hub It ? Decentralize It? -- Atomize it!!

Last month, I was invited by the Economist Intelligence Unit to present in Hong Kong on business hub strategies. Waltraut Ritter a managing partner at Knowledge Enterprises  also presented at this conference. One of the statements she made "hubs remind me of delays at airports....hubs are great for the airline but terrible for the customer" was extremely impactful, especially living in Singapore where "hub" is an overly used word. Singapore is positioning itself to be the bio-tech hub, education hub, logistics hub, Asian aerospace hub, etc..

I spoke more from an organizational point of view. The talk generated quite a bit of dialog. In this article I will summarize some of my talk and the feedback that it generated.

One of the most important aspects is to understand what is driving the Hub or decentralization strategy? I referred to some ideas I had talked about in an earlier blog entry “Agenda coloured glasses”.
Each functional unit such as finance, R&D, sales, marketing, etc has their own agenda for wanting to drive a decision to centralize or decentralize. The agenda could be based on anything from tax rebates for the organization, to a leader wanting complete control over all aspects of an organization. However, from an organizational point of view it is imperative to align the drivers of the different agenda, with the overall organizational goal.

A key take away from this view of understanding the agenda was that the “players should not be the score keeper”. This idea resonated with almost all the business leaders in the room. It was agreed that often decisions are made or forced through, promising great returns for the business. But as time passes, the metrics, expectations or goals are changed, thereby rendering the changes either unecessary in the best case or destructive in the worst case.

The discussion then moved to a centralized company structure. The concept of centralization could broadly be categorized in terms of hubs and decision or control centers.

From a centralized hub point of view there was broad agreement that having a hub made sense for
▪ Low margin , often high volume products
▪ Undifferentiated products
▪ Low value add to customer interfacing roles
▪ Franchise model requiring consistency

From a centralized control perspective there was agreement that it often lead to
▪ Policed innovation
▪ Limited growth of leadership except at the centre
▪ Organizational distance from the customer and finally
▪ Increased risk of “critical exposure” because the controls for a organization in very few hands can lead to bad decisions that impact the whole organization (like at Enron)

From a decentralized point of view there was broad agreement that it made sense for
▪ Higher margin products
▪ Value added customer interfacing roles,
▪ Differentiated products/systems/business models

From a decentralized control perspective it leads to
▪ Increased customer centric innovation
▪ Closer understanding of customer needs
▪ Decreased risk of “critical exposure” since the organization is “atomized” into a multitude of P&Ls hence a bad decision could capsize a atom but have small impact on the whole organization.

I also presented a couple of case studies where it was clear that with a decentralized business approach, companies had tremendous improvement in performance like at Sony TV division (Sony's Newest Display Is a Culture Shift ) where the America business Unit started showing tremendous results when the product definition for TVs in America was delegated to Sony’s America team instead of the earlier centralized approach of all decisions being made in Japan.
Finally a highly simplified conclusion on the impact of these complex issues was as follows:

Impact of Centralization
- Increase control of operations (at least a perception of increased control)
-Increase efficiency of certain functions in an organization
-Less investments on sharing best practices
-Open loop decision making
**Impact of decision may not be seen immediately
**Build bureaucracy – often forgetting their job is to service the business
**Skill of negotiating the company labyrinth gets rewarded


Impact of Atomizing
- High customer contact and market understanding
-The cell/atom can be replaced with minimum pain!
-Higher investment in sharing best practices
-Closed loop decision making and control
**Immediate effect, high accountability
**Cannot hide behind the bureaucracy
**Skills of understanding the market and customer expectation gets rewarded
One of the things that this session highlighted to me is that each person has a different understanding of centralization or decentralization. The biggest misconception is that centralization equals location when in fact the essence of centralization or decentralization should be defined based on where the final decision is made, and not necessarily where resources are located.

Leading from the middle

I was in the process of writing up some training/discussion material for the managers on my team when I realized that what I really wanted to communicate is that I wanted a team that was configured to lead from the middle, where a steep narrow pyramid of hierarchy was not needed. So I googled the term "leading from the middle" and got more than 15 million results. In a nutshell my idea was not "new" and tremendous amounts of research has been done on "leading from the middle". Nevertheless I will write my ideas down, knowing full well that most "good ideas" were already thought of.
In Organizations the three aspects of leading from the middle involve

• Commitment, where one needs to be committed, understand the vision and purpose, and most importantly be competent to lead.
• Managing your bosses and the people who report to you. This is an essential part of leading from the middle, and comes from confidence of knowledge of the market, the customers, the technologies, the processes, and very importantly your own organization
• Leading from the middle of an ecosystem of businesses/organisations that compliment your own business/organization.

Commitment is a choice, a choice of ownership of the organization that you choose to lead from the middle. In leading a team, it is important to distinguish commitment from competence. There are a lot of competent people with out commitment or passion. And one of the things I have learnt over the years of managing people, is that passion is the more difficult aspect to inculcate.

In an age where most information is a google search away, the confidence of knowledge, is often mistaken to be an abstract concept, and the confidence of knowing is mistaken to be the confidence of having accomplished the things you know about. Achieving the goals of your organization, working through the details and having it done yourself gives you the ultimate knowledge. Case studies etc. can not substitute experience , they can only offer some insight.

Leading from the middle of an ecosystem really means partnership. It means to truly build internal and external partners who compliment your organization. Conceptually building partnerships is easy, but in practise it is very difficult. From a business perspective, partnerships have different shades, like technology partners, commercial partners, Industry focused partners etc. One of the most natural tendencies in many partnerships that I have seen, are for the partners to look for exit strategies even before the partnership really matures. Thought of exit strategies come up because one believes that their organization could get better margins without the partner, because the partners get "scared" of dependency, and a score of other reason. Ultimately, looking for exit strategies is an excuse , often the main reason is because you do not want the partner to be extremely successful.

On a final note, not all people can lead from the middle. The challenge for senior management is to identify and encourage the right people to lead from the middle. This requires the courage at an organizational level to encourage friction!!