Centralization
and
Decentralization
CPTE 433
John Beckett
Why Centralize?
• “Centralization is an attempt to
• improve efficiency
– by taking advantage of potential economies of
scale: improving the average;
• it may also improve reliability by minimizing
opportunities for error.”
Why Decentralize?
• “Decentralization is an attempt to improve
speed and flexibility
– by reorganizing to increase local control and
execution of a service: improving the best case.”
The Conceptual Difference
Centralization
Decentralization
• Improved efficiency
• Reduced distance to the
solution
• Improved Effectiveness
• Like Latency
• Like Bandwidth
Two issues
• Where is the resource?
• Who supports it?
• The two issues aren’t necessarily the same!
Why Centralize?
• Take advantage of economies of scale
Or to say it another way…
• Reduce the skill set per person required to
run the firm
• Increase the velocity with which each support
person can solve problems in their skill set
Why Decentralize
Keep control close to the people who need the
service
• “Karen was always right there when we
needed new workstations installed.”
• “Joe could deal with problems instantly,
instead of our having to go through the
support line.”
So What’s The Right Answer?
• There isn’t one.
• It’s a political decision with massive technical
ramifications.
• The trend is toward decentralization…
– So that managers can be held more responsible
for results in their areas.
– As companies fragment into virtual corporations.
– Accommodates increasing fluidity in organizations
So What Do You Do?
• If you are providing centralized support
– Try to deliver the advantages of decentralization
• If you are providing decentralized support
– Try to deliver the advantages of centralization
• If you are changing from one to the other
– Treat the transition much as a service roll-out.
Before You Move…
• Changing degree of centralization is to some
extent a political move
– “Politics” means “Who can do what” or “Who can
control what”
– The technical view of a decision is based on “what’s
best” (effective? Efficient?). Political decisions are
about who benefits
• Know why you are making the change
• Look at trade-offs
– Include political cost and structure in your thinking
Plan For Growth
• Whatever scheme you use should tolerate
growth well
• What is your company’s business?
– Buying and selling companies
• Plan on a fluid architecture, emphasizing decentralization
– Low-cost production of widgets
• Plan on an efficient, consistent architecture
• Consider Ikea’s approach
– Decentralized operations
– Consistent architecture world-wide
Quotes from the text
• “You only have one chance to make a good
first impression.”
• “Listen to the customers, but remember that
Management has the control.”
What If You’re Asked?
• Show that you can see advantages in both.
• Commit to bringing in both sets of
advantages, given whichever method you
advocate.
• Deliver on your commitment.
– This may involve adjusting priorities to comply
with your commitment.
• Use the term Challenge instead of
“expensive” or “wrong”
Candidates for Centralization
• If what you are doing is really the same (or
needs to be), centralization may be a good
idea.
– More consistent architecture => simplicity
– More rapid response to a problem
• Consistent infrastructure is needed
• Consistent expertise (re: economy of scale)
Candidates for Decentralization
• Customization for truly unique business needs
• Tight response to customers
• Fault Tolerance
– People problems
– Equipment problems
• Politically-hot issues
– Case: Extremely poor service, client decides decentralization is
the only answer. In time credibility was restored.
– Case: Client heard from peers that decentralization was key to
success and wouldn’t listen to any other idea. Coordination
gave back many of the centralization advantages.
One Combined Approach
• When your company buys a company,
establish your best-in-class service
architecture
– Economy of scale
• …but keep it decentralized
– Flexibility to reorganize at the top level
Making Centralization Work
• Keep good records of customers’ needs
– Structure record-keeping process so that it occurs as
auto-magically as possible
– …and delivers context preservation
– You don’t want an extended grilling process they must
endure to get to someone who will actually render them
some aid.
• Be visible
–
–
–
–
MBWA – Management By Wandering Around
Deliver the product
Measure your success
Sharpen the saw (audit your success)
Making Decentralization Work
• Establish and maintain “good” communication between
resources
– Techs
– Systems
• What is “good” communication?
– Keeping in touch
– Resilience: Ability to quickly recover from errors
• Consider a centralized database
• Give decentralized people reason to believe they’re “on the
team.”
– Recognition goes a long way here!
– “Thanks to Joe in Purchasing – who reported that a problem had been
corrected so we didn’t waste a trip over there.”
• Consider structuring central site as a resource instead of
control
Areas for Cent/Decentralization
• Services provided over the network
• Technicians
• Purchasing
–
–
–
–
Record-keeping
Warrantee coverage
Warrantee processing
Repair service
What is Out-Sourcing?
• Sometimes it is like Centralization
– Taking advantage of economy of scale for a
specific competence
• Decentralization
– Providing a quicker path to a solution than your
central organization can give
• Consider “In-Sourcing”
DUH!
– Providing support as if this was a paying customer
Why Do Outsourcing
• You don’t have enough resources to achieve
economy of scale.
• You need the expertise resulting from
economy of scale.
• For example: You don’t have resources to
write your own operating system…
– So you get one from Microsoft or a Linux distro
Outsourcing
• Requires specific interfaces to the outsourced
function.
• Consider bidding on function to be
outsourced, at the same interface points.
– Call it “in-sourcing”
• Perhaps your own people can win the
contract.
• That’s what we call a Service Level
Agreement!
• Do it before you’re forced into it
Scope and Out-Sourcing
• Out-sourcing vendors control their costs by
limiting scope
• Things outside the scope cost extra
• Cruise line: “One price”
– Except for alcohol
– Alcohol consumption varies widely, and excess
can increase other costs
– Is this a metaphor for something in your outsourcing contract?
Off-Shoring
• Call it “extreme out-sourcing”
• Distance to vendor is greater
– Increases risk
• Cost difference is greater
– Increases opportunity for profit
• Question: What kind of business are you in
– And what is your risk tolerance?
In-Sourcing Issues
• Keep the interface points firm.
• Keep track of your resources to make sure
they are being used for what you got the
money for.
– Example: Prev. Maint. person being pulled off the
schedule to help with projects that are running
behind.
• You may have to do your own accounting for
this.
Your “Moat”
• The “Moat” is whatever gives you an advantage over
other companies.
– Better technology
– Better people
- Better organization
- Better “fit” of resources
• A moat based on static technology will dry up because
others will duplicate your technology.
• Early adoption of a technology usually means it doesn’t
inter-operate, so you get to help pay development
costs
• Late adoption of a technology may mean others have
the market sewed up when you get there (or take it
away from you)
• You’ll have to keep filling the moat or it will dry up!
“Bleeding Edge”
• If your company’s divisions are unequal in
their need to be on the edge, consider
decentralization
• If you do this, expect conflicts
– Focus on relationship issues
Pick Two
Cheap
Fast
Good
Consolidate Purchasing
• Get better deals
• Deliver software faster
– The nth license is something we already have!
• By knowing what others are buying, we
achieve:
– More consistency (which drives costs down)
– Better buying decisions
– “Gotta have” new things spread like wildfire 
The FAX decision
• The 2nd and 3rd FAX machines meant a trend
• Assigned FAX numbers to every department
– Routed them to nearest physical machine
• We could optimally tune FAX presence to the
quantitative need without changing phone
numbers
• Numbers reorganized: The plan was continued
• Physical FAXes are history now – built into
printers (ditched “fax server” generation)
• We need to watch for opportunities to use the
same approach with other technologies
Host Consolidation
• Earlier: Adding a service is as easy as throwing in
another host
• Now: This costs us to maintain
• SAU’s solution: Server virtualization
– Each virtual host is a logical entity that can be
deployed from a farm of physical hosts
– Each virtual server is an image available for
deployment using any of a number of physical servers
– Reorganization is GUI-easy
Summary
• Four types of approaches
–
–
–
–
Centralized
Decentralized
Out-sourced
Out-sourced to an entity you control
• Which is best? It depends
• Your job is to be aware of the advantages of
all, and bring those advantages to bear in your
situation.