Diminishing returns and research penalties would just cause there to be a tipping point where making more labs isn't worth it. This is, admittedly, exactly the point... However, it wouldn't "increase decision making", because the
decision you'd
make there is a no brainer. If it's more efficient to research 10 things at once with 10 labs each, than it is to research 1 thing with 100 labs, you would research the 10 things at once instead.
It wouldn't even hurt large empires unless you added some arbitrary "size penalty"
like in certain bad games like Stellaris. I'd still be spamming labs with a huge empire, I just wouldn't be power-researching a handful of things. I'd be researching 200 things at once with 10 labs each and my labs would be in more places.
Tech spread though does introduce a way in for the concept of
Tall VS. Sprawl in empire building.
As
@alex_brunius said, military stuff would/should work as it does now, as would civilian stuff for the most part. You'd probably still cluster most of your industry together in the core, just to make sure all of your industry improvements spread to the places actually using them quicker. The difference between tall/sprawl empires is mostly when it comes to defence and development.
A Sprawl empire's older frontier military facilities aren't going to be up-to-date as fast as a Tall empire, and so the Tall empire has more efficient border garrisons defending slightly better developed worlds. The Tall empire is also logistically easier to manage, although has less overall resources long-term than the Sprawl empire unless they start to expand more.
The developmental effects of going Sprawl over Tall, would be that all the frontier colonies building money-printers around the clock won't be "up to speed" as fast, and neither will your terraformers/miners. The Tall empire would play in the sense of their entire territory except the very edges being effectively their core worlds (or damn near it) as far as development, whereas the Sprawling empire would have a smaller core and a wider periphery with better resource availability (although lower exploitability).
If internal politics came into it, that'd also add another layer, but I don't really like the idea of internal politics in this game. It'd just make for more goddamn numbers to track. I think rebellions would feel more like they do in Distant Worlds (stupid RNG crap that is annoying) as opposed to feeling the way they do
most of the time in CK2 ("damn I got out-manoeuvred")
I guess you'd have more internal unity as a smaller empire, and thus less ambitious frontier garrison commanders to keep track of.