THE DANGER OF CENTRALIZING
One of a leader’s primary responsibilities is to determine how best to structure the organization. This becomes particularly important when a company owns a number of other companies. How much autonomy should each division have? What areas should the parent company take ownership of? What functions should they relinquish to the division? Philosophically where should the base of power reside? These are important questions whose answers determine the viability of the entire organization.Centralization certainly works in certain organizations. However, history suggests that furniture companies - wholesale and retail - are best run by individuals who are filled with a spirit of entrepreneurism and accountable for the performance of the entire company’s performance not just a few functional areas. These individuals take responsibility and thrive on autonomy and the accountability that comes with it. Structured this way these companies can be more nimble, proactive and responsive to the changing needs and challenges of the marketplace. Their ear is to the ground and their eyes are open and they are able to react quickly. These leaders do not have time for politics and bureaucracy. Their focus and efforts are directed at their customer and improving the performance of their company.
Unnecessary harm has been inflicted and value diminished in the name of centralization. The parent company begins combining back office functions from the different companies to save costs. While this makes sense on paper it can begin an insidious incrementalism that ultimately relocates the power base and decision making further away from the consumer. Initially consolidation may include logistics, accounting or human resources, but because the power base has shifted, and the potent force of inertia, it may eventually include sales, merchandising and marketing. Homogenization of the various companies becomes a real risk. Moreover, it now takes days instead of minutes to make decisions. In time so many people are involved that no one feels responsible.
The furniture industry is not high profit. There is no room for non-value added effort. Politics and bureaucracy that result in slow decision-making and lack of autonomy are all competitive disadvantages. The end result at the division level can be a shredded corporate culture, the consequent loss of identity, and a deteriorating bottom line.
In this scenario, which has been repeated numerous times in our industry, all power moves to the parent company. This results in the number of people at corporate ballooning. Reports are reviewed and spreadsheets are analyzed. Recommendations are made, decisions reached and orders given with little understanding for what is happening on the ground. Real world truths are ignored in favor of ones created by well meaning people who are insulated from reality. The individuals living in the parent company bubble may convince each other they are right and that the division level leaders lack understanding. In truth, it is usually just the opposite. This model risks disconnecting responsibility and accountability and leaving companies bereft of empowered leadership.
History is on the side of the parent company that hires the best leadership team possible for each company. The functional areas within each company should report to them-not to someone at the parent company. The parent company’s role should be to provide counsel and support so that the leadership team has the resources they need to succeed. Many companies would have been better served if they had followed this path.
No structure is appropriate for all companies but there is much evidence that centralizing to reduce costs and “improve” decision-making can be the most expensive decision a furniture company ever makes.
John commented:
Eric I couldn't agree with you more. You ran Kittle's that way and it saw it's greatest growth those years.
In recent years this centralized concept has happened to manufactures and retailers. At first it looks like it will save them, in the long run market share is lost.
Moral is lost. The employees fear loosing their jobs. The remaining warriors of the company become lemings. Reminds me of the Hans Christian Anderson's story The Emperor Has No Clothes.
Barry W commented:
Eric...
Very nice article. I agree with you and I've seen this in small as well as large organizations within the furniture industry. Sometimes the impact is worse in a small company because more & more decision have to go through the owner and he/she gets bogged down and unable to think long-term.
Keep up the good work.
Easter fan commented:
Very good article! Centralization to high ranking executives is the quick route to short term big bonuses and long term erosion in overall performance - it's proven over and over again. The decison to centralize is comparable to hitting the lever on your tiolet - it just goes in an endless death spiral.
Easter fan commented:
Very good article! Centralization to high ranking executives is the quick route to short term big bonuses and long term erosion in overall performance - it's proven over and over again. The decison to centralize is comparable to hitting the lever on your tiolet - it just goes in an endless death spiral.
furniture guy commented:
There are certain dangers for every form of the corporation. Lack of cost competitiveness is often seen in all kinds of companies too. Sometimes, it s not about what we want or not want, but about what we face today. Unfortunately history could not provide all answers for our problems today, especally in this ever-changing retail market/channel and global trade environment. Autonomy should still work but only if they stand cost-effective, and centralization may not harm if the centralized services could be provided without overiding the sales/marketing directions of each brands. Furniture companies do live or die on the designs and sales, so somehow centralization must stop at this very important function; otherwise, we are making all cenralized companies become a big pot without any different flavors and tastes. Therefore we should peserve autonomy but only if we could be competitive by standing-alone. Cost pressure is everywhere in today's world, so we'd better be careful what we ask for, because there is always a price for everything you ask for, no free lunch. Saying may be easiser, so it's better to check out the real world that we all are in, so we must see who is out there performing with or without trying centralization of something.
Katherine C commented:
Eric,great comments from so many!Love it!Companies that are led by an individual and a team of leaders that find joy in accountability tend to keep the flame of excitement burning......that keeps you on your toes but watchful not to jump too soon,considering timing.I also believe in a strong rep/company bond.It's a heartbeat of a brand that is caught by sales teams and the company represented by them(reps).Lack of autonomy creates a lumbering giant,thick and slow and sleepy..cultivating a braintrust of many different smart people and many age ranges by a leader (S) causes them to
risk being great.The burn and the joy start at the top even in these times or especially in these times.Stop letting the petty minds be your sounding board for everything and reach out to great hearts and minds.They'll be a breath of fresh air!
Katherine C commented:
Eric,great comments from so many!Love it!Companies that are led by an individual and a team of leaders that find joy in accountability tend to keep the flame of excitement burning......that keeps you on your toes but watchful not to jump too soon,considering timing.I also believe in a strong rep/company bond.It's a heartbeat of a brand that is caught by sales teams and the company represented by them(reps).Lack of autonomy creates a lumbering giant,thick and slow and sleepy..cultivating a braintrust of many different smart people and many age ranges by a leader (S) causes them to
risk being great.The burn and the joy start at the top even in these times or especially in these times.Stop letting the petty minds be your sounding board for everything and reach out to great hearts and minds.They'll be a breath of fresh air!
Furniture man commented:
Eric,Your 100% correct as well proven by FBN.The personalities of each company has been left behind when it went to St. Louis.The stupidity bonuses paid and tier pricing only proves this fact.
Eric Easter commented:
To Retailer--
You are exactly right. The brands are at risk of losing their reason for being. Instead of building and strengthening the brands it seems as though this centralization process has weakened them. Market share, floor space, advertising share all seem to have diminished.
Reps are so important and it is sad to see them sidelined and even eliminated in one case. The connection between dealer and supplier in most cases is a function of the rep. Strong rep = strong relationship.
It is sad that more stores are living without brands. I say this even in my current capacity as one who works for a company that is not a brand name. I believe our industry needs strong brands.
Thanks for your comments.
Eric
Eric Easter commented:
To Anonymous--
I worked at Thomasville from 2003-2006. I witnessed the move toward centralizing at the end of my tenure. In fact, this was my primary reason for resigning. I just don't think it works in our industry.
This seemingly good idea lacked the context of history. We see the results.
Eric
Retailer commented:
Eric, your comments are incredibly insightful. As a retailer that sells several higher end brands of FBN, we have seen a true decline in the individual brands. At Drexel and several other brands as examples, we have seen the value added benefits of customizing casegoods with domestic production eliminated, weaker and unfocused market intros, and incredibly tepid response in all aspects to the challenges facing the economy. The positioning of the brands in the market are getting more confused and talent seems to have been let go for the sake of centralization. One of the last hold outs are our reps and customer service. When they get folded into St. Loius, I fear that the much needed access to the companies will disappear as well. Very sad. We have enjoyed working with these companies for mutual success. It seems that the centralization process seems to have forgotten that distribution of products is not guaranteed.
anonymous: commented:
This sounds so much like the world at FBN that it is uncanny. Whose desk were you sitting in at St. Louis when you wrote this article? You hit the nail on the head. What initially seems like a good idea can ruin a company.
Eric Easter commented:
Rick--
I have the same concern. The problem is that especially in today's world a balance sheet alone takes you only so far.
Thanks for your comment.
Eric
rick hendrix commented:
Eric,
I have seen too many really good companies fail or become mere shadows of what they once were because of this exact scenario.
In today's economic climate; I fear others are headed down the same path armed with only a balance sheet and good intentions.
