Someone once told me a story about a man who only kept two files in his desk — one on how to centralize the company and one on how to decentralize it. It turns out every time there was a change in leadership, there would be a corresponding shift in the way the company was structured. Why all the flip flopping? Is one structure better than the other? Or is this just a case of someone putting a stake in the ground to put their own signature on the company?
Quite honestly, there is no clear cut answer about what is best for a business. Whether to centralize or decentralize needs to be evaluated on a case-by-case basis by considering the goals of the company and how interactions, both internally and externally, will get the business to those goals. What happens more often than not is a hybrid situation. Sales is decentralized but marketing is centralized. HR is centralized but operations is decentralized. However, there are two areas of a company where I think at least some centralization needs to be strongly considered — finance & accounting and IT.
Many of the arguments for centralizing these two functions are similar:
There are economies of scale to be gained from managing bulk transactions or company-wide systems with a dedicated group of employees.
Consistency and best practices can be filtered throughout the organization.
Maintaining controls and ensuring prescribed procedures are followed is easier.
In today’s economy, and with the multitude of legislative requirements especially surrounding the finance & accounting field like SOX, these thoughts should be at the top of the list when considering the centralization question. Centralization of functional areas like A/P, A/R, cash management and payroll is important to consider since these are prime gateways to fraud and embezzlement. This is not to say centralization would completely protect a company but it’s easier to ensure the controls to prevent it are followed.
Even though it may seem I’m a huge proponent of centralization for finance & accounting, you will notice I said some centralization needs to be strongly considered. One of the downfalls of having all of finance & accounting run from a central perspective is often the creation of an “us vs. them” mentality. Finance is viewed as being prohibitive, not working with the business and being more concerned with following the rules regardless of the impact on operations.
There is a way to avoid this — ensure there is good communication between finance and the business units. One of the best ways to accomplish this is to have a dedicated accountant or analyst working with each group that is actually part of their team. The accountant can act as a champion for the unit to see their needs are addressed but are still balanced with the requirements from the center. They also gain a better understanding of the unit and can provide the insight needed when doing variance analysis or business evaluations as part of the reporting process. This is how I structured my department and each of my accountants became a valued team member whose opinion was sought in day-to-day decision making.
Ultimately, each company must weigh their requirements and their culture to structure the finance & accounting function so it provides the support and value needed by the business. Just remember, it doesn’t have to be an all-or-nothing proposition when it comes to centralization or decentralization.