Fashion is notorious for wild swings in style. Cynics would attribute this to the marketing prowess of designers who manipulate the fashion conscious. Management consultants have been accused of a similar tactic–advising clients one year to centralize operations and a couple of years later advising them to decentralize.
There is a phenomenon going on in our institutions today that is more than your typical designer-driven wide-tie/narrow-tie cycle. While centralize/decentralize is at the core of the phenomenon, it is more than a consultant-driven strategic decision. It appears to reflect a fundamental shift in how organizations function.
With mass production came mass centralization. We moved resources close together so they could be scheduled and managed more effectively and efficiently. This scenario played out across many sectors.
Hotels: Small inns and bed and breakfasts accommodated travelers for decades or actually centuries. As technology and management advanced, we centralized these resources into large hotels, with sometimes hundreds of rooms clustered together. This centralized structure made it much more efficient to schedule, clean, maintain and manage the rooms than when they were spread out across a city or region.
Retail: Small merchants, boutique clothing stores, hardware stores and corner groceries dominated the retail scene for many years. Then came the department stores and malls, followed by “big box” stores. Centralizing all the merchandise together made the supply chain, marketing, operations and shopping experience much more efficient, as has been validated by the dominance of Walmart.
Commercial Real Estate: Throughout most of history, office functions were performed in the home or shop. The office as we know it was a product of the industrial revolution, with administrative offices located in production plants. With advances in communication, offices moved out of plants and into “office buildings.” Having employees work in close proximity brought operating and communication efficiency. This centralization of offices led to the development of skyscrapers and suburban office parks that dominate the office space side of commercial real estate.
Healthcare: For centuries, most healthcare was delivered in the home with “house calls” being the standard mode of delivery. The doctor would bring medical equipment in his—almost all doctors were male—doctor bag. As medical technology became sophisticated, it was much more efficient to centralize treatment in clinics and hospitals where patients were clustered close to the high tech equipment and highly trained physicians. Care is delivered in physician offices, clinics and hospitals where it is not uncommon for the largest tertiary centers to have over a thousand beds clustered together.
Today we are witness to an amazing shift. As technology continues to evolve, the curve that has driven us to greater centralization appears to be reaching an inflection point and we are beginning to experience mass decentralization.
The hyper speed of technological advances is shifting efficiency back to a decentralized model. Again, this is occurring across sectors.
Hotels: Rooms in homes dispersed throughout a city are again replacing clustered or centralized hotel rooms. With platforms like Airbnb, individual hosts are replacing rows of hotel clerks and concierges. The connectivity provided by the Internet, cloud, browsers and apps is shifting efficiency back to decentralized accommodations.
Retail: Micro retailers on platforms like Etsy are competing with the aisles of big box stores for customers. New retail players like Amazon have decentralized shopping from difficult-to-access stores and malls to the convenience of the home, or actually “anywhere, anytime.” Technological advances powering decentralized marketing, shopping and distribution are overtaking the economies of scale formerly delivered by centralization.
Commercial Real Estate: Along with operating efficiencies of the centralized office came access issues in the form of long commutes and traffic congestion a well as high costs. While collaboration among employees is more important than ever, advances in communication and connectivity technology are making the requirements for proximity less important. Sometimes small teams of employees still need to be clustered together but many employees can work “anywhere, anytime.” As technological and organizational models continue to evolve, some organizations will be totally virtual and others will cluster a small number of employees in corporate offices with other employees and freelancers decentralized in work nodes, coworking spaces and home offices.
Healthcare: Along with efficiency, the mass centralization of patients made access difficult and brought high overhead costs and safety issues related to hospital-acquired infections. Today, patient’s living rooms are again becoming “exam rooms” and even bedrooms are becoming “hospital rooms.” With advances in connectivity and technology, the doctor’s bag today has more instrumentation and monitoring capability than entire hospitals a few years ago. Using an “Uber” model, doctors and highly trained nurse practitioners are again visiting homes. Even more efficient are telemedicine encounters. For some patients, remote monitoring and portable, micro equipment make the home bedroom a “hospital bed” option. As the curve continues to bend, clustering will still to be required for a few really sick patients, while most healthcare can be delivered in a dispersed, decentralized model.
The scope and commonality of this trend across diverse sectors cannot be overemphasized. We even see it in industries not driven by advances in connectivity and communication. Energy is great example. We have gone from wood stoves in homes to large, centralized, coal-fired and nuclear power plants, and now are moving back to small solar and other renewal energy sources powering individual homes and small communities.
As we reach the inflection point, highly successful, centralized, large corporations must adapt quickly or find themselves at great risk. Perhaps the biggest warning came recently when Ford Motor Company, the inventor of the assembly line and mass production, announced that they were entering the car share business and transitioning to a mobility company.
Corporations must be on alert—are you a wide-tie or narrow-tie company?