To centralize or not to centralize?

McKinsey Quarterly had an interesting article on whether To centralize or not to centralize?:

The chief executive of a European equipment manufacturer recently faced a tough centralization decision: should he combine product management for the company’s two business units—cutting and welding—which operated largely independently of each other but shared the same brand? His technical leader believed that an integrated product range would make the company’s offerings more appealing to businesses that bought both types of equipment. These customers accounted for more than 70 percent of the market but less than 40 percent of the company’s sales. “You cut before you weld,” he explained. “You get a better weld at lower cost if the cutting is done with the welding in mind.” Managers in both divisions, though, resisted fiercely: product management, they believed, was central to their business, and they could not imagine losing control of it.

Clearly, centralization has many benefits – from leveraging synergies between product lines to reducing overhead costs.  However it can also add bureaucracy and reduce visibility into overall performance.  The article points out a three question discussion:

1. Is the centralization mandated by regulation?
2. If not, does centralization add significant value?
3. If not, are risks of centralization low?

Pretty useful.