The mediating role of decentralization between strategy and performance

Abstract

PurposeThe purpose of this paper is to empirically examine the mediating role of decentralization in the relationship between a firm’s strategy and its performance in the context of an advanced economy where the chief corporate strategy is differentiation.Design/methodology/approachThe study uses data collected by an online survey targeting a stratified sample of 1,238 private firms operating in Denmark. The empirical analysis was carried out by estimating a structural equation model.FindingsThe key finding was that a decentralized organization (DO) can act as a mediator between a firm’s differentiation strategy and its performance. A multi-group analysis revealed that the mediating impact of decentralizing was affected by contingency factors such as firm size, strategic clarity, degrees of business environment risk and industry competition. Thus, a DO can be said to play a more important role in larger firms, in firms with less strategic clarity, and in companies with multiple plants.Research limitations/implicationsAlthough the study offers empirical evidence from a relatively large and representative sample of firms, the specificity of the context should be noted. In particular, firms in Denmark, while facing strong competition, do not compete with low costs. Clearly, studies of the mediating role of decentralization in low-cost strategy environments would be an important next step.Practical implicationsSeveral implications of the findings for organizational design and creation of beneficial conditions for strategy implementations are discussed.Originality/valueThe novel contribution of the study lies in the focus on decentralization as a mediator in the strategy–performance relationship. While previous research has shown that strategy is related to decentralization, and that decentralization is associated with higher performance, an empirical analysis of the relationship between the factors in the strategy-decentralization-performance path had not previously been undertaken.