Decentralization as a Catalyst for Growth: Kaizen Strategy & Startup Structure

In my Communications Undergraduate Studies, we often discussed the moment in which humanity’s true potential began its acceleration: the advent of the printing press. It made information accessible to the masses instead of held only by the elite. Humans’ capacity to learn and build on its learnings accelerated as we were no longer bound by the geographical and generational spread of knowledge, and the adverse effects of the broken telephone game. This fundamental shift in knowledge resulted in a shift in power: individuals gained agency and information became democratized. Many Communications scholars attribute this decentralization of knowledge and information as a catalyst for economic growth and development.

Now in my MBA graduate studies, we formally learned of the process of decentralization: the process by which control, authority and decision-making are, over time, transferred from a concentrated authority to a broader population. I am reminded of the democratic environment decentralization brings.Although in a democracy, the few speak on behalf of many, these individuals are elected by the masses. Therefore implying that decision-making is inherently decentralized in a genuinely democratic function.

Now that we have discussed the potential for decentralization to inspire innovation and growth, and an example of decentralization Canadians experiences every day, I would like to move our discussion towards business-specific applications of decentralization from both a strategic and a structural perspective. My aim is to demonstrate the merits of two applications of decentralization after which I will conclude with a prompt for the reader to participate in this normative discussion and contribute to a democratic and decentralized approach to writing. More on that later ;).

Decentralized Strategy: The Toyota Way

Kaizen is a Japanese business philosophy advocating for the continuous improvement in all business functions and employee-levels. The ultimate goal is to improve standardized programs and processes, eliminate waste, and improve output quality. The goal: increased efficiency (spurring many organizational benefits) while enhancing the final product’s quality for the customer.

Our MBA class was first exposed to Kaizen in our operations class, where we learned of The Toyota Way. We had the privilege of visiting the Toyota Manufacturing plant in St Thomas, Ontario and saw first-hand how each employee is empowered to develop their own curiosity and take “risks” (when compared with traditional business operations). These risks include speaking up when they think they can improve something, having the autonomy to act and replaces complacency. Gone is the response “it’s how we’ve always done it,” when asked why a certain process is in place.

Some argue that decentralization spurs innovation, and this is demonstrated in Toyota: each employee is empowered to find innovative ways to improve the current process in which they are operating. In turn, employees are motivated as they play an essential role in the improvement of their place of employment. This level of decentralized decision-making and ownership is further elevated by the fact that Toyota employees do not work a single function. To prevent injuries from repetitive motions, reduce dependencies on highly specialized roles, improve efficiency and further foster an environment for creativity, each employee is trained and cycled through the entire production process. The benefits to employees from more learned skill-sets are clear, and the benefits to Toyota further feed into the merits of the Kaizen strategy.

Kaizen creates an ideal platform connecting multiple levels and functions within Toyota towards the same common goal. It empowers the individual to act freely to contribute to Toyota’s goal without traditional constraints of seniority, self-selection bias (i.e. not being an “expert,” etc. It is an innovation platform that creates accountability. While decentralization draws many similarities to the Kaizen business method. However, if we are to analyze Kaizen in the Toyota context, its organizational structure is hierarchical and not fully decentralized. This implies that a decentralized business strategy can thrive in a centralized business structure. For example, Toyota’s strategy applies decentralization; however, its governance structure does not.

Toyota’s Overview of the Kaizen Strategy

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Toyota is so confident in its ability to create value using Kaizen; it openly shares its strategy and how to apply it to its competitors. However, not many other entities are aptly capable of adapting decentralization and end up dropping Kaizen for being ineffective. I believe the difference is that Toyota, while hierarchical in structure, truly holds each team member – no matter their seniority – accountable towards the same common goal and respects each employee enough to hear their expert-in-their-function opinion. How democratic!

Decentralized Business Governance Structure: The Startup Way

Next, let’s briefly examine a decentralized business structure. I would like you to think of your most recent place of work: your CEO & President, her C-suite, the directors, and managers. Drawing on my experience at a high growth startup in Toronto’s tech space, I witnessed first-hand the difference between centralized and decentralized governance. In our early days, we were a small and agile team. Each member had their “functional” roles and “reported” to a more senior member. However, each team member aligned on the company’s (and founder’s) vision uniting us under one goal. Given appropriate and necessary constraints*, we are empowered to take ownership of our role, experiment, make decisions that we thought could propel the organization toward the common goal, and we’re trusted and empowered to act “freely.” The goal: fast growth, cross-functional collaboration, a real understanding of each other’s work, and job satisfaction.

As companies grow, they begin to shed the decentralized structure for a more “efficient” and structured centralized governance. Processes find their place; employees become confined to their job function based on title than on capacity and willing to raise your hand and help. Thus, scale, team size, and institutional settings create an environment whereby a decentralized structure becomes more costly than the benefits they create. This serves as an example of how appropriate and beneficial decentralization is in a business setting but also serves as an example when perhaps it is no longer applicable.

Here is a simple graphic demonstrating the key differences, pros and cons of [de]centralization in a business context.

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Both sides are likely to have their arguments and respective merits.

On that note, I would now like to involve the current reader to engage in a discussion and provide potential drawbacks (and other opportunities!) to the marriage of Kaizen Strategy and Startup Structure as a decentralized approach to business governance. My goal with this decentralized approach is to ensure future readers have more points of view than my own and have different perspectives to make a truly informed opinion.

Until next time,

AN.