As companies get flatter, everyone gets noticed

Massimo Garbuio and Nidthida Lin

Sydney, Australia, January 16, 2018

The trend of ‘flat’ organisations is catching on at some of the world’s biggest companies.

It is easy to see the appeal when you think of a utopia where everyone in an organisation has a say and can act autonomously.

Elon Musk, CEO and product architect of Tesla, said in the Communication Policy to his staff

“Anyone at Tesla can and should email/talk to anyone else according to what they think is the fastest way to solve a problem for the benefit of the whole company.”

In a flat organisation, fewer management layers are actively involved in decision-making. People who have the relevant information make the relevant decisions, which reduces the hierarchical overload.

Difficulty for large ones

You can imagine this working in small and medium size organisations. But for larger companies, an enormous amount of investment is required for the transformation, which often makes a flat structure often unrealistic and unimaginable.

At online retailer Zappos, CEO Tony Hsieh has pushed flat to a whole new level, adopting holacracy principles. These are customisable self-management practices, where roles are defined around work, authority is distributed and the organisation in regularly updated in small iterations.

To take this a step further, Gary Hamel, a well-known scholar and consultant, advocated for firing all managers, as he claims they are the least efficient part of an organisation.

Why so appealing?

As organisations strive to respond quickly to new challenges and opportunities, flatter organisations shorten the chain of command, increasing communication between employees and management.

Researchers Raaj Sah (University of Chicago) and Joseph Stieglitz (Columbia University) argued that hierarchic style organisations produce problems like the rejection of good projects without reason. The greater the number of organisational decision making layers, the greater the probability that a good project will be rejected that would have otherwise had a positive impact on the company’s growth.

And it is not just lower level employees disheartened by the traditional hierarchic corporation. In our research, we spoke to the vice president for corporate development of a large American company, operating in the energy sector. He told us: “I worry that I might not get a chance to see some projects …as they go through a ‘filter’ and I cannot make a choice because I don’t get to see …them all. There is a natural tendency to only show ideas that have a higher likelihood of getting funding.

Reinforcing research

This point is reinforced by research that finds in situations where there are many levels in an organisation relative to the total number of employees, information gets distorted when it passes through hierarchical levels. These structures encourage employees to bypass superiors or simply use them as messengers.

Cutting through organisational layers also improves the speed of decision making and the time it takes to get a product to market. A study of over 300 executives from around the world, found that the greater the number of organisational layers, the slower the organisation reached customers with new products and services.

Reducing overheads

Beyond human relations in the office, flatter organisations are often cheaper to run and more dynamic. These benefits are similar to what organisations would achieve through outsourcing, where companies avoid investing in resources.

By keeping the number of management layers minimal, a flat organisational structure helps cut down the overhead costs of management.

Not everyone can be flatter

Organisational structures do have challenges. Individual managers can resist moving to a flat structure because they fear losing their job.

Flatter structure might also lead to a lower sense of accountability as each employee has more than one boss. If the communication between employees and the management is not well managed, it could potentially overwhelm executives.

Another challenge is the significant time, resources, and investment required for a large organisation to transform to a flatter structure.

Focus on agility

In reality, the push to become flat is much like the focus on agility.

Agility is the ability to quickly reconfigure strategy, structure, processes, people and technology for the most benefit. One of the key elements is a flat organisation.

According to a recent McKinsey Global Survey, two-thirds of respondents indicated that their companies have already begun agile transformations. Examples include Google, Netflix, Spotify, the Dutch Banking Group ING and, more recently, ANZ.

Interestingly, this study shows that only 4% of all respondents said that their companies have fully implemented agile transformations by creating a flat structure.

The bottom line is that different industries have different dynamics and different degrees of disruption – and so may need different organisational structures to operate efficiently.

Massimo Garbuio and Nidthida Lin are Senior Lecturers respectively at University of Sydney

University of Newcastle, Australia. A Disclosure to the article said, “The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.” The above article, which appeared in ‘Conversation’ (Australia) on January 16, 2018, has been reproduced here under ‘Creative Commons Licence.’

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