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The Manager

Should your business be centralized? Add to ...

One of the tough calls facing a CEO is whether to centralize the organization. In the McKinsey Quarterly, Andrew Campbell of Ashridge Business School, and Sven Kunisch and Gunter Muller-Stewens of the University of St. Gallen Institute of Management, offer three questions to help assess the issue:

Is centralization mandated?

For some matters, such as the annual report and consolidated business statements, centralization is required and the task can't be delegated. For others, decentralization may be an option.

Does it add significant value?

Determine whether centralization will add significant value. The authors set a high bar: 10-per-cent improvement. That hurdle makes it difficult for centralization advocates to "game" the analysis, twisting it to serve their ends, and saves the top team time by quickly eliminating small opportunities from discussion.

Are the risks low?

Determine whether the impact of centralization - business rigidity, reduced motivation, bureaucracy, distraction while implementing the new system - are low.

A centralization proposal should be able to survive at least one of these questions.

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