Centralization vs. agility: The end of economies of scale?

“We have decided to cut your capex (investments). You need digital exercises, but so do all the countries in our group. So, instead of making the investments in each country, it will be cheaper to centralize and make them once.” Oh, my god! How many times have I heard this song? In theory and on Excel sheets, it looked great, but the reality was anything but.

As a small country, our needs always ended up at the bottom of the list. We were already quite agile as an organization, while the other countries were still very traditional and slow. The results were hours of alignment meetings, hours of analyzing, hours of preparing plans and very little improvement for our customers. In the end, the costs were not lower for us but higher, and we rarely got what we needed. It resulted in lower revenues than expected because we didn’t improve our customers’ experience (on the contrary).

Sound familiar?

Our smallest team working for the smallest market was the most profitable one

Instead, we made cost savings and freed some money to build what we needed ourselves at a fraction of the cost the group was spending. We did that without telling them, of course. My boss once told me: “Ask for forgiveness, not permission,” and I used that a lot. J In fact, the smallest team in my organization, the one responsible for our French-speaking education segment, was also the most agile and profitable one. The French-speaking educational market was five times smaller than the Flemish-speaking market, and yet that team was 30% more profitable that the rest of the organization—30%!!! Agility and improving the customer experience had become more important than economies of scale and centralized decisions.

When the group realized what we had managed to deliver for a fraction of the money they were spending, they wanted the other countries to follow our lead and copy our strategy. But it wasn’t our strategy that made a difference, it was our culture. Just replicating the strategy without changing the culture didn’t work.

So, is it the end of economies of scale?

I don’t think so, but economies of scale come after improved customer experience and agility. And we should include the high costs of alignment in our Excel sheets when considering centralization.

Today, I build my new business with existing technologies. I use many different platforms and systems, but as soon as they don’t suit my needs anymore, I switch to another one. I am close to my customers and I have the power to switch when necessary. Agile teams should have this power too. The problem in many organizations is this culture of thinking that management or headquarters is more important than the customer. The higher you are in an organization, the more important you are. It should be the contrary, of course.

Management and headquarters should work for the people and the customers. It’s not the bosses that pay our salaries, it’s the customers :)

If you like this topic, I'm organizing a free Masterclass about how to better cope with the changes coming from our fast-changing digital era next week. You can follow it by registering here. This Masterclass from Solvay Brussels School has opened the eyes of many leaders and helped them transform themselves and their organizations.