Originally published in Entrepreneur Magazine
By Scott Wylie
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Recent research from the Stanford and Harvard business schools has shown that, during the Great Recession, firms that decentralized were more apt to survive. The finding is contrary to long-held belief in the business world that, during economic downturns, centralized companies outperform. Specifically, companies that delegated more decision-making responsibility during last decade’s crisis had higher productivity levels and shallower declines in sales.
One explanation: Reducing bureaucracy and empowering lower-level managers helped control expenses and improved response time during a difficult period. Sectors with unusually high stock market volatility during the last recession, such as banking, particularly profited.
Decentralizing’s benefits diminished, however, before and after the global financial crisis, in part because of an increased need for coordination and control in more normal times.
Bottom line: When times get tough, companies get stronger by empowering their people.
Scott Wylie is Chairman and CEO of First Western Trust Bank.