Federal Decentralization: Strengths
The greatest strength of the federal principle is that it alone of all known principles of organization prepares and tests people for top-management responsibility at an early stage.
In “federal decentralization” a company is organized into a number of autonomous businesses. Each unit has responsibility for its own performance, its own results, and its own contribution to the total company. Each unit has its own management which, in effect, runs its own “autonomous business.”
In a federally organized structure, each manager is close enough to business performance and business results to focus on them. The federal principal therefore enables us to divide large and complex organizations into a number of businesses that are small and simple enough that managers know what they are doing and can direct themselves toward the performance of the whole instead of becoming prisoners of their own work, effort, and skill. Because management by objectives and self-control become effective, the number of people or units under one manager is no longer limited by the span of control; it is limited only by the much wider span of managerial responsibility. The greatest strength of the federal principle is, however, with respect to manger development. This by itself makes it the principle to be used in preference to nay other.
The Federal Principle
Federalism relieves top management from operating duties and sets it free to devote itself to its proper functions.
What the enterprise needs is a principle that gives both the center and the parts genuine managerial functions and powers. This principle is federalism, in which the whole of the enterprise is conceived as made up of autonomous units. The federal enterprise and all its units are in the same business. The same economic factors determine the future of the whole as well as of all units; the same basic decisions have to be made for all of them; the same kind and type of executive is needed. Hence the whole requires a unified management in charge of the basic functions: the decision what business the enterprise is in, the organization of the human resources, and the selection, training, and testing of future leader.
At the same time, each unit is a business by itself. It produces its own products for a distinct market. Each unit must, therefore, have wide autonomy within limits set by the general decisions of the management of the whole. Each unit has to have its own management. The local management will be primarily an operating management; it will be concerned mainly with the present and immediate future rather than with basic policy. But within a limited scope it will have also to discharge real top-management functions.
The right Organization
The only things that evolve by themselves in an organization are disorder, friction, mal performance.
The pioneers of management a century ago were right: organizational structure is needed. The modern enterprise needs organization. But the pioneers were wrong in their assumption that there is – or should be – one right organization. Instead of searching for the right organization, management needs to learn to look for, to develop, to test, the organization that fits the task.
There are some “principles” of organization. One is that organization has to be transparent. People have to know and have to understand the organization structure they are supposed to work in. Someone in the organization must have the authority to make the final decision in a given area. It also is a sound principle that authority be commensurate with responsibility. It is a sound principal that any one person in an organization should have only one “master.” These principles are not too different from the ones that inform an architect’s work. They do not tell him what kind of building to build. They tell him what the restraints are. And this is pretty much what the various principles of organization structure do.
Limits of Quantification
Quantification for most of the phenomena in a social ecology is misleading or at best useless.
The most important reason why I am not a quantifier is that in social affairs, events that matter cannot be quantified. For example, Henry Ford’s ignorance in 1900 or 1903 of the prevailing economic wisdom that the way to maximize profit was to be a monopolist – that is, to keep production low and prices high – led him to assume that the way to make money was to keep prices low and production high. This, the invention of “mass production,” totally changed industrial economics. It would have been impossible; however, to quantify the impact even as late as 1918 or 1920, years after Ford’s success had made him the richest industrialist in the Unites States, and probably in the world. He had revolutionized industrial production, the automobile industry, and the economy in general, and had, above all, completely changed our perception of industry.
The unique event that changes the universe is an event “at the margin.” By the time it becomes statistically significant, it is no longer “further”; it is , indeed, no longer even ” present.” It is already “past.”