While in a previous post I was arguing that we should handle industry models with care, because of very inconvenient side effects. This week I’ll blog in a similar way on centralization. Among the effects of centralization are often overlooked or neglected dis-economies of scale.
Dis-economies of scale
One of the main reasons for centralization is to gain economies of scale. Less known are the dis-economies of scale. I’ll give some examples in the paragraphs below.
The cost of communication between the central group and the rest of the organization. Although there are lots of tools that make communication easier. Distance in the physical sense or within an organization can create boundaries. These have to be dealt with and there are costs incurred for that. Besides that it has to be clear who to communicate for what matters. This, in my experience, is not always the case. With a greater (organizational) distance more effort has to be put into this.
There is a large possibility that top heavy management in a centralized department becomes isolated from the effects of their decisions. In other words the feedback loop is broken. Because the communication loop is broken, decision become more and more dysfunctional. This due to the lack of real world knowledge that should be incorporated in these decisions.
Centralization can lead to reduced agility. On one hand standardization is a great asset. The larger part of architecture, whether it is enterprise architecture, process architecture or infrastructure architecture, is about standards and reducing the “solution space”. This has several advantages, among which the reduction of software- and systems entropy. The downside of a centralized body that maintains standards is that it probably will lead to inertia and unwillingness to change.
I’m a big fan of (open) standards. They simplify life! However we should not neglect that standardization comes at a cost. There are the costs for implementing, adapting to and maintaining standards in our organization. Say for example that we use a canonical (data) model. There is are maintenance costs (at least some effort) while adopting to change outside and within our organization. These costs of standardization tend to be hidden.
What to do?
Bring the effects described before into the business case for centralization. You did make sure that there was some sort of trade off when you decided to centralize a certain part of your organization didn’t you?
Take measures to prevent these risks. It goes without saying that these measures will take effort, time and possibly money. Now you know you’re going to take measures don’t you?