“Organization structure must make possible the training and testing of tomorrow’s top managers.”
Great organizations not only produce business results they also develop the managers of tomorrow. This chapter explains the requirements for forming the right management structure. Two principles are preeminent: federal decentralization and functional decentralization. The former is the decoupling of a large business into autonomous units responsible for their own performance and results. The key idea is that the business units need their own markets and products. Also, their profits should contribute to the main business.
Decentralized business units have several profound benefits. They are more agile, they produce greater results, and they provide general management opportunities for more people. Drucker lists major companies that adopted federal decentralization in the early 20th century such as DuPont.
This chapter will give executives an understanding of when to use federal decentralization versus functional decentralization. They will learn the critical aspects of both approaches.
(The Practice of Management, chapter 17)