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Organizational Structure (Centralized, Federated, Decentralized)

“Organizational” structure refers to a way of governing how decisions are made. 

A centralized organizational model is a way of governing most decisions from the center of the company (e.g., headquarters, corporate groups, etc.). This means decisions are usually made from the top of the hierarchy. 

A decentralized model is the opposite; most decisions are made from lower levels of the company, in local units or at the front line. 

A hybrid or federated model refers to a combination of both centralized and decentralized where some decisions (e.g., those concerning a specific budget amount) are taken at the top and others are localized.

There are benefits to each model. Centralization generally yields better control and greater efficiency, but as decisions are made at the top, the risk is that top leaders may lack the operational day-to-day insights of the impact of their decisions.

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