Why decision rights become a critical operating constraint as companies scale—and how getting them wrong undermines execution, leadership development, and business performance.
The Operating Constraint That Growth Exposes
Ask a founder or CEO what is preventing their company from scaling, and the answers usually involve capital, talent, market conditions, or insufficient time.
Those constraints are real. But another receives far less attention: the organization’s ability to make and execute decisions at the right organizational level.
In many growing businesses, decisions that should take hours require days. Functional leaders wait for approval on matters they understand better than the approver. Elsewhere, people make customer commitments without adequately assessing operational capacity or financial impact. Priorities shift because someone with greater authority has a different idea, sometimes without understanding the consequences for already committed resources.
Meanwhile, the founder or CEO becomes increasingly involved in decisions that should no longer require their attention.
The company may have capable people, adequate resources, and genuine market opportunities. Yet its ability to execute remains constrained by how authority is distributed and exercised.
I have seen this pattern across organizations of different sizes and stages of development. The problem is rarely as simple as a founder unwilling to delegate or managers lacking initiative. More often, the business has outgrown its decision-making process, but leadership has not adjusted the operating model.
As the business grows, decisions become more numerous and interconnected. The information required to make them is distributed across more people and functions, while authority often remains concentrated in the same individuals who made most of the decisions when the company was considerably smaller.
Adding employees, capital, or technology may temporarily relieve some constraints. But unless the decision-making structure evolves, those investments can introduce additional complexity without a corresponding increase in execution capacity.
The issue is not simply how quickly decisions are made. It is whether the organization has developed the authority, competence, and discipline to make sound decisions at the appropriate level—and execute them effectively.
The constraint is not merely a shortage of resources. It is how the organization makes decisions.
Decision Rights: Authority Is Not the Same as Responsibility
A decision right is the authority to make a defined decision within established boundaries, including commitments of organizational resources where authorized, without seeking additional approval.
Although straightforward in principle, people often confuse decision rights with responsibility, accountability, consultation, and task delegation.
Consider a functional leader responsible for delivering a project but unable to allocate the resources required to complete it. Or an executive accountable for financial performance who has limited influence over commitments made by other departments.
In both situations, responsibility exists without sufficient authority.
The reverse can also occur. Someone may possess the authority to make commitments without being adequately accountable for their financial or operational consequences.
Economists Philippe Aghion and Jean Tirole explored an important aspect of this problem in their 1997 research on formal and real authority.
Formal authority establishes who has the recognized right to decide. Real authority reflects who actually controls the decision, influenced by access to information, incentives, and the ability to intervene. Whether delegated authority works in practice also depends on whether the organization—and particularly senior leadership—respects decisions made within those boundaries.
This distinction explains why changing an organizational chart or introducing a responsibility matrix does not necessarily change how a business operates.
A manager may be formally authorized to make certain decisions, but if the founder or CEO routinely reverses them, that authority is largely symbolic.
The manager remains responsible for execution while someone else retains effective control.
Over time, employees learn that the written structure does not reflect how the organization actually functions. Decisions are escalated unnecessarily, initiative declines, and accountability becomes increasingly difficult to establish.
The solution is not simply to delegate more decisions. It is to establish decision rights that reflect the organization’s operating requirements, define their boundaries, and ensure they are respected in practice.
What the Research Supports—and What It Doesn’t
Management research provides useful evidence about decentralization, organizational structure, and decision-making. However, it does not support the simplistic conclusion that more delegation automatically produces better business performance.
There is also no established causal estimate showing that clarifying decision rights increases startup growth by a particular percentage.
Bloom, Sadun, and Van Reenen (2012), studying thousands of firms across countries, documented a relationship between higher levels of trust and greater decentralization. That association does not establish that decentralization itself produces superior performance.
Aghion and colleagues (2021) found that previously decentralized firms performed relatively better in industries hit harder by the Great Recession. This does not imply that decentralization is always preferable.
When conditions change rapidly, employees closer to operations may have information that senior management cannot acquire quickly enough. In other circumstances, coordination needs or differences in objectives can favor greater centralization.
Saerom Lee’s 2022 study of game-development startups found that flatter organizational structures supported exploration and idea generation but were associated with difficulties in execution and commercialization.
Similarly, Sine, Mitsuhashi, and Kirsch (2006) found that greater organizational formalization was associated with better performance among ventures operating in an emerging industry. In my experience, that structure works best in cases of crisis management, such as high-stakes turnarounds.
These studies examine specific settings and do not establish a universal rule for startups. They do, however, challenge the assumption that formal structure necessarily inhibits innovation or that flatter organizations always execute better.
The more useful conclusion is that the appropriate distribution of authority depends on the nature of the decisions, where relevant information resides, the degree of interdependence among functions, and the organization’s capacity to execute.
Centralization and delegation are not competing management philosophies. They are operating mechanisms that should be applied selectively.
Where Decisions Should Sit
I begin with the decisions themselves, not the titles of the people making them.
A company can spend considerable time debating reporting relationships without resolving the underlying problem: who has the authority to make which decisions, under what conditions, and with what accountability?
1. Where Does the Relevant Information Reside?
The person closest to a problem frequently possesses information that becomes incomplete, delayed, or distorted as it moves through organizational layers.
That does not automatically make the individual closest to the problem the appropriate decision-maker. It does mean that authority should account for where the relevant information resides.
Wouter Dessein’s research on authority and communication provides a useful theoretical foundation: delegation becomes attractive when the costs of imperfect communication to senior management exceed the risks of differences in objectives or judgment.
Consider an operational issue that a functional leader handles regularly.
If that leader must explain the problem to several executives, wait for their responses, and obtain approval from someone with less direct knowledge, the process may introduce delays and additional opportunities for misunderstanding.
The organization consumes executive attention without necessarily improving the decision.
The alternative is to establish the conditions under which the functional leader can decide independently, including clear boundaries and escalation requirements.
2. How Reversible Is the Decision?
Decisions do not all carry the same risk.
Some can be tested, evaluated, and reversed at relatively low cost. Others create significant contractual, financial, regulatory, or strategic commitments that may be difficult or expensive to unwind.
Jeff Bezos popularized this distinction through the concepts of one-way and two-way doors in his 2015 shareholder letter. Although this is a practitioner heuristic rather than validated academic research, the distinction is useful.
A reversible operational adjustment involving limited resources should not require the same approval process as a major capital investment or a commitment that materially changes the company’s risk exposure.
Applying the same approval process to every decision ignores that distinction.
Excessive scrutiny of relatively low-risk decisions consumes management capacity that would be better directed toward consequential choices. Conversely, treating significant commitments as routine decisions can expose the business to unnecessary financial and operational risk.
3. How Many Functions Does the Decision Affect?
A decision that appears reasonable within one department may create substantial problems elsewhere.
A commercial team may negotiate terms that improve the likelihood of closing a contract but create delivery obligations the organization cannot fulfill economically.
A technology investment may improve technical performance while introducing infrastructure costs that exceed the anticipated benefits.
An operational change may increase one team’s productivity while transferring work, costs, or risks to another.
These are not necessarily failures of departmental judgment. They can result from decisions made without adequate visibility into their effects on the rest of the business.
Cross-functional decisions require input from the people responsible for the affected areas. But consultation should not automatically confer decision authority.
When everyone involved has an effective veto, decisions can become negotiations among competing departmental interests rather than evaluations of what is best for the business.
The objective is to obtain the necessary information, understand the trade-offs, and establish who has final authority.
4. Does the Individual Have the Competence and Judgment to Exercise That Authority?
Leadership development and delegation are inseparable.
Two individuals occupying similar positions may have different levels of experience, judgment, and understanding of the organization’s broader priorities.
Giving them identical authority simply because their titles are equivalent may not be appropriate.
Effective delegation requires evaluating whether individuals understand the decisions they are expected to make, recognize consequences beyond their immediate responsibilities, and know when to escalate.
This is not an argument for withholding authority until someone has demonstrated perfect judgment. That standard would prevent leadership development altogether.
It is an argument for progressively expanding authority as competence develops, while maintaining clear boundaries and appropriate accountability.
Developing Leaders Through Decision Rights
One approach I have used is to establish a matrix defining which decisions individuals can make independently, which require consultation, and which require approval.
What matters is how the matrix is used and how authority changes as judgment develops.
The process begins by establishing expectations and ensuring that individuals understand both the scope of their authority and the outcomes for which they are accountable.
Their decisions are then reviewed against those expectations, including the quality of their judgment, the information considered, and their ability to recognize when circumstances require escalation.
As individuals demonstrate competence, their authority can expand. Others may need additional guidance, experience, or clearer boundaries before assuming broader responsibilities.
The objective is not to develop everyone into the same kind of leader or move everyone toward the same level of authority. It is to create the conditions under which individuals can develop their capabilities and contribute where they are most effective.
A poor outcome does not necessarily mean someone made a poor decision.
Good people make mistakes. Even experienced leaders make reasonable decisions that produce unfavorable results because information is incomplete, assumptions prove incorrect, or circumstances change.
If every mistake results in authority being withdrawn, employees learn that avoiding decisions is safer than exercising judgment.
That behavior may reduce visible mistakes in the short term, but it also undermines initiative, slows execution, and increases dependence on senior management.
My approach has been to encourage people to raise problems as early as possible, especially when they recognize that a decision may not produce the intended outcome.
The immediate priority is to understand the situation and find a solution. Only after addressing the problem do we examine what happened, what could have been anticipated, and what lessons should inform future decisions.
That sequence matters.
When employees believe that acknowledging a problem will automatically trigger blame, they have an incentive to delay reporting it or attempt to resolve it without the necessary support. That delay can turn a manageable issue into a much more expensive one.
When people understand that early escalation is expected and that mistakes will be evaluated fairly, management has a better opportunity to intervene before the consequences become significant.
This does not eliminate accountability. Repeated poor judgment, disregard for established boundaries, or failure to learn from previous mistakes may require corrective action or changes in authority.
But accountability should distinguish among a reasonable decision that produced an unfavorable outcome, a decision made without adequate consideration, and a decision that exceeded established authority.
Each calls for a different management response.
The objective is to develop people who can exercise sound judgment independently, not people who have simply become proficient at seeking approval.
The Founder Override: When the Operating Model Exists Only on Paper
One of the most damaging failures occurs when a founder or CEO agrees to delegate decisions, then repeatedly overrides them because the outcomes do not match personal preferences.
I have been a founder more than once. I understand the attachment founders develop to their businesses, the responsibility they carry, and how hard it is to relinquish control.
But ownership and executive authority do not eliminate the need for operating discipline.
Founders, CEOs, and their leadership teams shape an organization's culture through their behavior, especially when circumstances become difficult or decisions produce outcomes they dislike.
An organization may communicate that its managers are empowered to make decisions. It may have well-defined reporting relationships, documented responsibilities, and established approval processes.
Employees pay more attention to what leadership does than to what the organization says.
When a functional leader makes a decision within agreed authority and the CEO reverses it without following the established process, the organization receives a clear message: the formal structure is conditional.
If that behavior becomes routine, employees begin seeking approval from whoever has the greatest influence rather than from the person formally responsible for the decision.
Functional leaders lose credibility. Priorities become unstable. Work is interrupted or repeated, execution slows, and costs increase.
The costs extend beyond internal efficiency.
Employees become frustrated or burned out when they are held accountable for results but cannot rely on the authority they have been given. Customers experience inconsistent commitments, changing expectations, or delays caused by internal disagreements.
I have seen these consequences in businesses ranging from small companies to substantially larger organizations. In some cases, the resulting damage extends well beyond operational inefficiency and can significantly erode business value.
A related problem arises when outside advice is mistaken for binding authority.
Founders sometimes treat investor input as an operational directive.
Investors can provide valuable perspectives, challenge assumptions, and identify risks management may have overlooked. Their input deserves serious consideration.
But an investor’s recommendation is not automatically an instruction. Formal investor rights, board authority, contractual obligations, and management decision rights must be distinguished.
Similarly, a founder’s ambition should not be confused with a validated business opportunity or a strategy supported by the organization’s capabilities.
A compelling vision provides direction. It does not remove the need to test assumptions, understand constraints, and evaluate the consequences of committing resources.
None of this means founders or CEOs should accept decisions they believe threaten the business.
Legitimate circumstances call for executive intervention, especially when material information was overlooked, established boundaries were exceeded, or a decision's consequences have changed.
The distinction is between intervention grounded in agreed authority, evidence, and governance—and intervention driven by personal preference.
When leaders repeatedly override the authority they have delegated, they do more than reverse individual decisions. They teach the organization that accountability is negotiable and that influence matters more than responsibility.
That culture is difficult to scale.
Decision Rights Must Evolve as the Business Grows
Growth adds decisions and interdependencies. More employees, customers, products, locations, and regulatory obligations increase the need for coordination.
Larry Greiner’s organizational growth model, originally published in 1972, describes how different approaches to leadership and organizational control can become inadequate as companies develop.
In his model, centralized direction can eventually create a need for greater autonomy. Delegation may address that problem, but it can introduce new challenges in coordination and control.
Greiner’s framework is conceptual rather than a universally validated sequence of organizational development. Nevertheless, it captures an important operating reality: a management approach that solves one set of problems may eventually create another.
The practical implication is that decision rights should evolve with organizational complexity, not simply with funding rounds, revenue milestones, or arbitrary headcount thresholds.
A larger headcount alone does not justify another management layer.
It may, however, need to reconsider its authority structure when decisions repeatedly return to the CEO, cross-functional conflicts increase, delivery becomes unpredictable, or managers lack the authority required to fulfill their responsibilities.
Redesign has costs of its own.
Research by Baron, Hannan, and Burton (2001) on emerging companies found an association between changes to founding organizational models and increased employee turnover.
Changing authority can disrupt established relationships, expectations, and ways of working. It can also create uncertainty about accountability and career progression.
For that reason, redesign should address identifiable operating constraints rather than reflect a preference for a particular organizational structure.
The objective is not to create more management. It is to ensure that the organization’s capacity to make and execute decisions develops alongside its operational complexity.
Making Decision Rights Work Without Creating More Bureaucracy
Improving decision rights does not require an elaborate governance system.
One practical diagnostic is to review a representative sample of recurring decisions over several weeks.
For each decision, management should establish who initiated it, who possessed the relevant information, who had formal authority, who actually made the decision, and whether it was subsequently reversed or escalated.
The purpose is to identify recurring operating problems, not to create another reporting exercise.
Are routine decisions repeatedly reaching the CEO? Are functional leaders making commitments that affect other departments without consultation? Are approval requirements delaying decisions without materially improving their quality?
Once leadership understands those patterns, it can clarify decision ownership, set appropriate authority limits, and define when consultation or escalation is required.
Frameworks such as RACI and DACI can help organize responsibilities and decision processes. I have used both. But the choice of framework should follow the problem being addressed.
RACI can help clarify responsibilities and involvement in activities. DACI is more directly oriented toward identifying who drives a decision and who has approval authority.
Neither framework can substitute for sound governance or consistent leadership behavior.
A responsibility matrix will not correct a founder’s unwillingness to respect delegated authority. A decision framework will not compensate for insufficient management competence. And adding approval requirements will not resolve inadequate information sharing.
In practice, five principles are useful:
Define authority in practical terms. Individuals should understand what they can decide independently, what requires consultation, and what exceeds their authority.
Establish escalation conditions. Decisions should move upward when predefined financial, operational, strategic, or other material boundaries are reached—not simply because someone is uncomfortable exercising judgment.
Connect authority to accountability. Evaluate people on the quality of their decisions and the outcomes they are responsible for, while recognizing that reasonable decisions can sometimes produce unfavorable results.
Develop leadership capacity deliberately. Authority should expand as individuals demonstrate competence, judgment, and an understanding of the broader business.
Review the operating model as complexity changes. Decision rights that were appropriate six months ago may no longer reflect the organization’s needs.
These are operating recommendations, not a formula proven to guarantee better performance.
Their value depends on the organization’s circumstances and whether leadership applies them consistently.
Decision speed and decision quality also need to be evaluated separately.
A faster decision is not necessarily a better one. A lower escalation rate is not necessarily evidence of stronger leadership. Managers can avoid escalation by making decisions they should have referred upward.
Performance must therefore be evaluated through a broader lens that includes execution quality, financial consequences, predictability, and the organization’s ability to identify and correct problems.
The goal is not to minimize management involvement at all costs. It is to direct management attention toward the decisions where it creates the greatest value.
The Question That Matters
Scaling is not simply a matter of making more decisions, or making them faster.
It is developing an organization that can make sound decisions without requiring the founder or CEO to personally resolve every important issue.
That capability depends on clear authority, competent leaders, reliable information, appropriate escalation, and accountability that encourages learning rather than avoidance.
No framework can substitute for senior leadership’s willingness to respect the authority it has delegated.
A business cannot develop independent leaders while routinely undermining their authority. Nor can it expect effective accountability when individuals are responsible for outcomes they lack the authority to influence.
Done well, distributing decision rights does not diminish the founder’s or CEO’s leadership. It makes that leadership more effective by concentrating executive attention on the decisions that genuinely require it, while building the organization’s capacity to handle the rest.
The question is not whether the founder or CEO should remain in control of the business.
It is whether the organization can develop the judgment, authority, and operating discipline required to grow beyond the limits of any one individual’s control.
Sources and Further Reading
The following research informed this article. The studies vary in methodology, scope, and evidentiary strength. Their inclusion does not imply that they establish a direct causal relationship between decision-rights design and startup performance.
Organizational Authority and Decentralization
Aghion, P., & Tirole, J. (1997). Formal and Real Authority in Organizations. Journal of Political Economy, 105(1), 1–29.
Examines the distinction between formal authority and effective control within organizations, including the relationship between delegation, information, and initiative.
Dessein, W. (2002). Authority and Communication in Organizations. Review of Economic Studies, 69(4), 811–838.
Develops a theoretical framework for understanding when delegation may be preferable to centralized decision-making, considering information asymmetry and differences in objectives.
Bloom, N., Sadun, R., & Van Reenen, J. (2012). The Organization of Firms Across Countries. Quarterly Journal of Economics, 127(4), 1663–1705.
Examines decentralization across nearly 4,000 firms and the relationship between trust and the distribution of organizational authority.
Aghion, P., Bloom, N., Lucking, B., Sadun, R., & Van Reenen, J. (2021). Turbulence, Firm Decentralization, and Growth in Bad Times. American Economic Journal: Applied Economics, 13(1), 133–169.
Examines the relationship between organizational decentralization and firm performance during periods of significant economic disruption.
Organizational Structure, Scaling, and Leadership
Lee, S. (2022). The Myth of the Flat Start-up: Reconsidering the Organizational Structure of Start-ups. Strategic Management Journal, 43(1), 58–92.
Examines the trade-offs between flatter organizational structures, idea generation, and commercialization in game-development startups.
Sine, W. D., Mitsuhashi, H., & Kirsch, D. A. (2006). Revisiting Burns and Stalker: Formal Structure and New Venture Performance in Emerging Economic Sectors. Academy of Management Journal, 49(1), 121–132.
Investigates the relationship between organizational formalization and performance among ventures operating in an emerging economic sector.
Baron, J. N., Hannan, M. T., & Burton, M. D. (2001). Labor Pains: Change in Organizational Models and Employee Turnover in Young, High-Tech Firms. American Journal of Sociology, 106(4), 960–1012.
Examines the consequences of changes to founding organizational models, including their association with employee turnover.
Greiner, L. E. (1972; revised 1998). Evolution and Revolution as Organizations Grow. Harvard Business Review.
Presents a conceptual model of organizational growth in which different management approaches create new challenges as companies develop.
Practitioner Frameworks and Decision-Making
Bezos, J. (2016). 2015 Letter to Shareholders. Amazon. Letter to Shareholders. Amazon.
Introduces the distinction between relatively reversible and difficult-to-reverse decisions as a practical decision-making heuristic.
Rogers, P., & Blenko, M. (2006). Who Has the D? How Clear Decision Roles Enhance Organizational Performance.Harvard Business Review.
Presents a practitioner framework for clarifying decision roles and accountability. It should not be interpreted as controlled evidence that a particular framework produces superior organizational performance.
