Imagine a ship at sea, at risk of sinking in a tempest. Is it better to empower the crew to do whatever it takes to save the ship, or should every decision be made by the captain and top officers? Similarly, what should the optimal form of firm organization be during a severe downturn? The need to make tough decisions—including layoffs—may favor firms that concentrate power at the top. However, the turbulence and fast-shifting conditions magnify the value of the information held by local managers.

The two views can be compelling. Indeed, in the depths of the Great Recession of 2009, a survey of executives by The Economist’s Intelligence Unit revealed that decision-making had become more centralized in the C-suite. The rationale: to emphasize “projects that provide benefits across the enterprise rather than individual units.” But in another report three months earlier, the same publication argued that “companies have to deal with dramatically more uncertainty, complexity and ambiguity in the current recession. Success does not come from centralization.”

So who should be in charge: the crew or the captain?

 …