Federal versus state control and how it relates to your business
The great debate about central versus local control.
If you’re a student of American history, you’re well aware the continuous and often acrimonious debate has been raging for over 200 years about the boundaries between central authority, in the form of the federal government, and local authority as represented by the 50 states and their county and city jurisdictions.
COVID-19 is once again putting this debate on center stage.
What is the role of the federal government in this? What authority should be invested in the 50 states? What is the most efficient way to plan and manage a quick and aggressive response to a national challenge?
In so many ways, businesses have the same decisions to make about how they are structured. This is true even if your organization operates out of a single location, but it’s certainly even more so if you have multiple locations or business entities. But the question of local versus centralized authority comes all the way down to the reporting relationship between a boss and an employee.
Here are some ideas about how to approach the debate with integrity:
Be aware that emotions and ego enter and sometimes even dominate these debates. I remember as I moved through my management and executive career, my ego was invested in numbers: “I have 150 people reporting to me, I am responsible for $400 Million in top-line revenue, 14 physical locations, etc….” These weren’t measurements of my importance as much as things I liked putting on my resume. So when you bring things from local control to central control, you expand one manager’s Kingdom and contract another’s. This is an obvious and regular source of conflict that often gets in the way of an objective solution. Just being aware of the emotions will help you lead yourself and others through these debates.
There are obvious benefits to centralizing some services in one location instead of spreading them out over multiple locations. Does it really make sense for 50 U.S. States to have 50 different procurement departments, strategies, IT systems, and supplier relationships for medical supplies? I think not. So, in attempting to put subjectivity and ego aside, there are really only two considerations that should guide the debate:
What is the best structure for the customer? Throughout my long career, there has been a gradual erosion of the importance people put on having local and personalized services. Customers may want to have frequent person-to-person contact with a critical salesperson, for example. Still, they would certainly not care about the location of a person who had to solve a billing problem or locate a shipment occasionally. I have a 20-year business banking relationship with a large bank, and I would rather chew on a bar of soap than go into the local Branch for any purpose. If I needed a large line of credit or a more complicated set of services from my bank, I would put a higher value on a personal relationship. The rule here is the customer should decide whether local presence is important, not you.
The other consideration is efficiency, pure and simple. There are many advantages to running a larger team as opposed to a smaller team. A centralized group of 20 can operate much more efficiently than 4 teams of 5 in many ways. Larger teams generate advantages in cross-training, coverage in cases of illness or unplanned turnover, training, and process development. So, while your accounts payable department might be 100 miles away, they may be more equipped than your smaller local Division or Department to take care of your needs.
The debate should be based on processes and systems, separated as much as possible from the individual capabilities of individuals within several locations. We can’t keep accounts payable in Omaha just because there’s a person in Omaha who knows how to work the system. The system's performance shouldn’t depend on the individual capabilities of one person in any case. If the system works well, the location from which that system is managed becomes less relevant.
In summary, the most important things about the debate between local and central control are:
Try to prevent it being an “or” but rather an “and.” The best solution, in the end, is probably some combination of both central and local control.
Let the customer dictate the need for local services, not the organization.
Most importantly, try to have this conversation with as much objectivity as possible. The most objective approach will often bump up against people’s natural tendency to want to surround themselves with evidence of their power. Keep egos and emotions in mind, but be persistent in the drive for the best strategy and structure.
