
In Part 4 of our Trade Execution (TE) guide, we introduced some common ways TE teams can be organised. Now, let’s take a closer look at these models, their advantages, and their challenges.
Five models for the TE Function
When deciding how to set up your trade execution function, there are five main approaches:
Centralised Model: Everything is managed from one central location or team.
Decentralised Model: Decision-making and operations are spread out across different locations or teams.
Offshore Model: Certain tasks or functions are moved to teams in other countries.
Outsourced Model: External companies handle specific tasks or functions.
Hybrid Model: A mix of two or more of the above options.
Factors Influencing Organisational Choice
The main objective of any function is to enable the business to achieve its strategy. But strategy isn’t the only thing to think about when deciding on the best functional structure. Other important factors include:
- Company Culture: Does the structure fit the company’s values and how people work together? Changing the structure can also affect how employees feel and work.
- Customer Needs: If your function interacts directly with customers, how can it be organised to best serve them?
- Teamwork Across Departments: How well does the function work with other parts of the business? The structure should help teams communicate and collaborate smoothly.
- Skills and Expertise: Where are the right skills available? Can the function attract and develop the talent it needs?
- Compliance and Risk Management: Does the function help the business follow laws and manage risks? In some cases, where roles are based can also bring financial benefits, like tax breaks.
Balancing Costs and Operational Effectiveness
When deciding on an organisational model, businesses often need to consider and balance costs. For example:
Efficiency vs Cost: Can the business accept lower efficiency if it means saving money?
Complexity vs Cost: Is a more complicated structure worth it if it reduces costs?
These choices need to be carefully weighed to ensure, for example, that any additional complexity does not also lead to lower performance, which would not be a desirable outcome.
The Centralised Model
The centralised model means most decisions and operations are controlled from a single location, usually the company’s headquarters. This creates a clear structure where top management or a specialised central team makes the key decisions.
For TE, a centralised function model focuses on pooling expertise, creating standard processes, and taking advantage of economies of scale. The function works as a hub, supporting the entire business from one place.
Benefits of a Centralised Model
A centralised model has some clear advantages. First , it makes coordination and teamwork easier. When everyone is in the same place or reports to the same team, it’s simpler to align goals and share information. This setup also helps reduce costs by avoiding duplication of resources and using shared tools and systems.
Another big benefit is standardisation. With one central team, it’s easier to create and follow consistent processes. This can improve performance and ensure everyone follows company policies. Centralisation also makes decision-making faster because all the key data is in one place. Additionally, centralised models help employees learn and grow by connecting them with more experienced colleagues and centralised training programmes.
For some organisations they consider it, rightly or wrongly, a necessity. Many small and medium-sized enterprises(SMEs), for instance, operate from a single location. They may perceive centralisation as the most practical and sometimes only viable option. However, centralisation isn’t the only path. In future editions, we’ll explore how SME’s scan leverage alternative models, such as decentralisation, outsourcing, or hybrid approaches, to unlock new opportunities for growth and flexibility in their trade execution functions.
Potential Risks
While the centralised model has many benefits, there are some downsides to watch out for. One risk is that it can slow things down. If every decision needs to go through a central team, it can create delays, especially in fast-changing situations.
Employees might also feel disconnected. If they’re far from the central hub , they might feel left out of decision-making, which can hurt morale and engagement.
There’s also the risk of overloading the central team. If too many tasks or decisions pile up, it can slow the whole process and create bottlenecks. And because the business relies heavily on the central hub, any issue there—like a system failure or losing key staff—can cause major disruptions.
Finally, communication can be a challenge. If the central team doesn’t have good communication channels, they might miss important local insights or fail to address specific issues quickly.
Conclusion
The centralised model can be a great choice for companies that want consistency, cost savings, and strong control. But it’s important to manage the risks that could a rise, such as slower decision-making and employee disengagement. By staying flexible, communicating openly, and using technology to keep processes running smoothly, businesses can make themost of the centralised model while keeping its challenges in check.
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