Broadening our Sight on the Decentralization-Organizational Performance Link: A Multi-Level Study

Abstract

As organizations strive for more flexibility in their business procedures, decentralized organizational structures have reemerged as a topic of interest in recent years. Yet, despite its long-standing tradition, the literature on the implications of decentralization for organizational performance has remained inconclusive. Our study aims at illuminating prior ambiguous evidence by examining a central individual-level mechanism underlying the relationship. Integrating the perspective of organizational structure as opportunities and constraints with social information processing theory, we argue that transferring decision-making authority to lower organizational levels has a positive effect on employees' emergent leadership, however only to the extent that their direct supervisors act in accordance with decentralized structures. Findings from a multi-level, multi-source field study of 5,816 individuals nested in 145 companies support our predictions that organizational-level decentralization exhibits a positive effect on individual employee's propensity to emerge as an informal leader, but only when the employee's direct supervisor shows high levels of empowering leadership. Individual-level emergent leadership, in turn, aggregates to higher organizational performance. By examining an individual-level mechanism of the decentralization-organizational performance link, our study bridges macro- and micro-perspectives and helps to gain a better understanding of how organizations may reap the benefits of decentralized decision-making.