The greatest strength of the federal principle is that it alone of all known principles of organization prepares and tests people for top-management responsibility at an early stage.
In “federal decentralization” a company is organized into a number of autonomous businesses. Each unit has responsibility for its own performance, its own results, and its own contribution to the total company. Each unit has its own management which, in effect, runs its own “autonomous business.”
In a federally organized structure, each manager is close enough to business performance and business results to focus on them. The federal principle therefore enables us to divide large and complex organizations into a number of businesses that are small and simple enough that managers know what they are doing and can direct themselves toward the performance of the whole instead of becoming prisoners of their own work, effort, and skill. Because management by objectives and self-control become effective, the number of people or units under one manager is no longer limited by the span of control; it is limited only by the much wider span of managerial responsibility. The greatest strength of the federal principle is, however, with respect to manager development. This by itself makes it the principle to be used in preference to any other.
ACTION POINT: Give people maximum responsibility by organizing according to the federal principle. Become an organization that develops numerous people.
Management: Tasks, Responsibilities, Practices
* Source: The Daily Drucker by Peter F. Drucker