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Madness as Usual

Innovation – Decentralization Increases Innovation but Makes It Harder to Implement

  • Stefan Kühl
  • Thursday, 5. January 2023

There is a general sense that organizations are increasingly dependent on innovation as a way of responding to changes in their environment. And this, it is said, requires that as much decision-making authority as possible is located at ‘lower levels’. As opposed to the classic bureaucratic form of organization, in which the responsibility for innovation was concentrated at the top of the hierarchy, organizations now need to ensure that they have numerous decision-making centres. These devolved units – partly autonomous working groups, independent profit centres, and innovation hubs – need to be authorized to contact customers, create new access routes to the market, or change their internal working processes.

In most businesses, but also in many public administrations, armies, police forces, hospitals, universities, and schools, this call for decentralization would probably be accepted without quarrel, and there is a lot of evidence that at least one side of this view is correct: working groups, innovation hubs, profit centres, and other forms of devolved decision-making increase the innovation ‘output’. When innovative adaptation to changes in the environment is no longer the task of a central body and is instead delegated, it is likely that very diverse solutions to problems will be forthcoming. But what happens after these innovations have been proposed?

Of course, introducing a new, more flexible way of using machinery that is only relevant to one production unit is no problem. And likewise, a profit centre entering a little-known but promising market is also straightforward, as long as this happens with means provided exclusively by this centre and no other parts of the company are affected. But this kind of independence of the decisions of decentralized units is the exception, not the rule. In most cases, an innovation affects other parts of the company as well, resources must be mobilized from outside the innovating unit, or it seems reasonable to extend the innovation to other parts of the organization.

And it is precisely in the processes of mutual adjustment and agreement involved in the expansion of an innovation beyond individual units that decentralized decision-making structures create a significant mutual hindrance. Previously, if the senior leaders within an organization considered an innovation to be useful, they could mobilize the necessary resources quickly by hierarchical decree. The upstream and downstream units had to tighten their belts for a while and were forced to cooperate with the unit responsible for the innovation. This option is now less likely to be open to the leadership because, in the interests of innovation, it has transferred this right of control to the decentralized units within the organization.

An even more severe effect, however, is that the top of the organization has only very limited powers to order the implementation of an innovation across the organization. In an organization with a centralized structure, the top could give hierarchical orders to the various units for the introduction of a precisely defined innovation. An innovation that seemed useful to the management thus could be introduced across the company in a relatively short period of time. This possibility no longer exists within decentralized structures . In pursuit of the goal of increased innovation, organizations have decentralized and, in so doing, have lost the ability to introduce organization-wide changes quickly.

The fundamental dilemma is therefore this: in order to facilitate innovation, organizations need to delegate responsibility, but they thereby make it harder to implement and accept any new proposed solutions. If a unit proposes an innovation that could be relevant to other units of the organization, central management has only a few ways and means left to roll it out across the organization. Businesses that want to be innovative thus find themselves in a catch-22: if they want to increase the number of innovations, they must choose a decentralized form of organization; if they want to implement them across the company, they need the familiar instruments of hierarchical, centralized control.


Prof. Stefan Kühl

links in his observations the latest results from research with the current challenges of the corporate world.

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