Centralised vs Decentralised People Services: Which One Is Right for Your Organisation?

Which one is right for your organisation?

The way you structure your People function can have a significant impact on everything from your culture and people experience to how well your business operates and performs.

So, how do you know which approach is best for your organisation? Let’s break each down so you can make an informed decision about what’s best for your organisation.

Centralised

In a centralised model, all People functions are managed by a single, central team. This is often the go-to for larger organisations or those that need consistency across different regions or business units.

Benefits:

• Consistency. With a centralised model, you ensure consistent policies, practices, and experiences for team members across all departments and locations. This can lead to a sense of fairness and alignment with company goals.

• Efficiency. Centralising People services can help reduce duplication, save on resources, and streamline systems across the business. One team managing everything often means fewer underutilised resources, and the ability to leverage tools and processes more productively.

• Strategy. A centralised team can keep a clear focus on long-term strategies, ensuring that People practices align with broader business goals. This could improve overall performance by reinforcing company values and objectives throughout the organisation.

Drawbacks:

• Less flexibility. Centralisation can sometimes miss the mark when it comes to addressing the unique needs of specific teams or regions. This can lead to teams feeling disconnected, or like their specific challenges and needs aren’t understood, prioritised or addressed.

• Slower decision making. Since decisions often need to go through the central team, this can slow down response times which can be frustrating for local teams who need quick solutions. Teams may also feel like they're waiting too long to get their needs met.

Decentralised

In a decentralised model, People services are spread out across different departments or regions, with each area running its own show. This is more common in organisations that value flexibility and fast decision-making.

Benefits:

• Tailored approach. Decentralisation allows teams to create People strategies that are more aligned with their specific needs, which can lead to higher engagement. Team members might feel more heard and understood, as key decisions are made closer to them.

• Agility. Since local teams have more control, they can make decisions faster without waiting for approval from a central team. This means quicker responses to team member concerns and changes in the business environment.

• Relationships. Having People functions embedded in departments my mean stronger relationships between the People team and leaders. This can lead to more personalised support for team members and a better understanding of local challenges and opportunities.

Drawbacks:

• Inconsistency. With decentralisation, you might see variation in policies and practices across different departments or regions. This can lead to confusion or even feelings of unfairness among team members if they perceive different teams being treated differently.

• Duplication of effort. Decentralised teams may end up working on similar tasks or projects without realising it, leading to inefficiencies and poorly utilised resources. This can impact the business by creating unnecessary complexity and reducing overall productivity.

Hybrid

If you’re not quite sold on going all-in with either centralisation or decentralisation, a hybrid approach could be right for you. In a hybrid model, some remits are centralised, while others are decentralised. Alternatively, you may choose to centralise strategy, tech and overarching frameworks, with flexibility for local teams to adapt them to suit their specific needs in the delivery.

Benefits:

• Flexibility in the framework. You get the structure and standardisation of centralisation for things that require greater governance, whilst having the freedom to decentralise other areas giving departments or regions more control and ability to localise delivery, to suit their needs.

• Scalability and adaptability. A hybrid model allows your organisation to scale more effectively. As your business grows, you can adjust the balance between centralisation and decentralisation based on what's working or isn’t or any changes in the business you need to respond to.

Drawbacks:

• Potential misalignment. A hybrid approach requires clear communication and partnership between the central team and local teams to avoid confusion about who is responsible for what. Without that alignment, you risk inconsistent experiences or duplication of effort.

• Risk of duplication. Even though a hybrid model reduces some duplication, it’s still possible for central and local teams to cross over in certain areas. If boundaries aren’t clearly defined, it can create inefficiencies that ultimately affect productivity and results.

Choosing the right approach

There’s no perfect model, just the one that makes the most sense for your business right now. To help guide your thinking, here are some questions to consider:

• Where do we need governance, and where do we need flexibility?

• What challenges are our People team currently facing, and what model might better support them?

• How important is local responsiveness to our people experience or operations?

• Do we have the systems and communication channels set up to support a decentralised or hybrid approach?

• Are we in a stage of growth or change that calls for more structure or more adaptability?

• What level of autonomy do our leaders and teams expect or need to perform at their best?

Whether you go centralised, decentralised, or hybrid, the important thing is to make sure your operating model supports your strategy and your people. As your business grows and changes, your People services model can evolve too. Wherever you land, getting it right will support your performance and help create an environment where your people can do their best work and have a positive impact.