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3 Ways Flat Management Structures Can Kill Your Business

It’s not about choosing the trendiest flat organization to adopt. It’s about finding the one that works best for your company.

3 Ways Flat Management Structures Can Kill Your Business
[Photo: Flickr user Antti T. Nissinen]

An organization’s need to generate and sustain unrivaled innovation is the driving force behind why management structure is the hottest business topic right now.

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And for a good reason. When companies get it “right,” they win big, explains MIT senior lecturer Steve Spear, referencing Toyota’s innovative management style as the reason the company is ahead of its competitors, like GM and Ford.

“It’s a very competitive industry,” he continues. “Everyone has access to the same talent pool, the same science and technology, the same marketplace with the same product offerings.”

In getting to the “right” answer, many companies are racing to implement a flatter organizational structure, but choosing the wrong one can have disastrous consequences. It’s not about choosing the most popular, trendiest flat organization to adopt; it’s about finding the one that works best for your organization.

Here are four flat organizational structures expected to be most popular in the future workplace:

Holacracy
Thanks to Zappos, Holacracy is no longer an obscure term when it comes to structuring, governing, and running an organization. In an ideal Holacracy organization, you can’t pinpoint the CEO because power is removed from the management hierarchy and distributed across the organization.

Zappos CEO Tony Hsieh compares this structure to that of a city:

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Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15%. But when companies get bigger, innovation or productivity per employee generally goes down. So we’re trying to figure out how to structure Zappos more like a city, and less like a bureaucratic corporation. In a city, people and businesses are self-organizing. We’re trying to do the same thing by switching from a normal hierarchical structure to a system called Holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.

Other companies that have adopted this peer-to-peer workplace are publishing platform Medium and productivity gurus The David Allen Company.

Network-centric
At Hong Kong’s largest export trading company, Li & Fung, networking is prioritized, which includes networking inside the company, networking outside the company, and across the whole ecosystem.

Photo: Flickr user Naquib Hossain

“In Li & Fung, a lot of the networking has to do with creating networks between the company and manufacturer,” says Deborah Ancona, a professor of management at MIT and author of the book X-teams. “In order to be nimble, they don’t own manufacturing. They network with manufacturers depending on the orders that they have.”

Lattice
U.S.-based manufacturer W.L. Gore follows the idea that companies don’t need hierarchy, but rather almost anyone and everyone is connected to everyone else. This means that instead of going up and down and across the hierarchy, there is much more direct contact and interconnection among associates.

“The lattice makes it such as you can just find somebody and that person connects you to everyone else when you need to be in touch to make a decision or get information,” says Ancona.

Gore CEO Terri Kelly told The Wall Street Journal in 2010: “First, we don’t want to operate in a hierarchy, where decisions have to make their way up to the top and then back down. We’re a lattice or a network, not a hierarchy, and associates can go directly to anyone in the organization to get what they need to be successful.”

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Self-Management
If you thought holacracy was flexible, wait until you hear about self-management. According to a Harvard Business School study, self-management allows employees “to find joy and excitement utilizing their unique talents and to weave those talents into activities that complement and strengthen fellow colleagues’ activities.”

Morning Star, producers of canned diced tomatoes, writes about self-management on its website: “We envision an organization of self-managing professionals who initiate communication and co-ordination of their activities with fellow colleagues, customers, suppliers, and fellow industry participants . . .”

Ancona lays out potential repercussions in the case that the wrong flat organization is chosen.

Photo: Flickr user
Alexander Lyubavin

Middle managers get stuck

As more companies move away from traditional bureaucracies to flatter structures, more responsibilities are often given to people lower down in the company. This can cause middle managers to feel a loss of power, says Ancona, which leads to them clamping down.

“Even though people say you have more freedom now, if you have that set of middle managers who feel threatened, then they can be a bottleneck in moving in [the desired] direction,” she warns.

Communication gets lost

Flatter organizations often have looser job descriptions, so sometimes it’s not always clear to those inside and outside the organization—customers and suppliers—who’s in charge.

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“It’s actually easier [to communicate] if people have very rigid job descriptions,” explains Ancona, “whereas when you start loosening those job descriptions, it gets a little unclear.”

This might not have been as big of a deal at one time, but as consumers today play a bigger role in the way companies do business, the customer experience becomes problematic if the right person is out of reach.

Innovation is slashed

Often, companies will decide to make the move to a flatter organizational structure, but don’t think about the culture that’s already in place.

“Leaders will come in and they’ll change the structure without realizing that they haven’t changed the norms of how things get done,” says Ancona. “You can be surprised by things like: people don’t feel like they should collaborate; they feel like they should still ask the boss permission before they do anything. People don’t take the initiative that you need in that kind of structure because the culture is still one of hierarchy.”

She adds: “When you have a structure that’s more collaborative and a culture that’s hierarchical, you get into trouble because you think you have to do what the boss says instead of work and organize on your own as the structure would kind of indicate.”

The above consequences show just how monumental structure affects everything, from shaping culture to the way employees interact, from the social relationships they have outside the workplace to the products the company designs. Since this is the case, it’s imperative that leaders take time to understand the problems they need to solve when implementing a management structure, advises Spear.

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“If our starting point of success depends on getting to the right answer fastest, and that depends on organizations with hyper capabilities of seeing problems and putting the discovery to good use, then the failure modes all corrode, corrupt, and inhibit those capabilities,” warns Spear.

In other words, don’t adopt a structure just because it’s popular. “Zappos gets a lot of attention because it seems so different, but fundamentally, think about what we’re trying to talk about here, which is how do you manage a group of people—this could be hundreds or thousands—toward a common purpose that they give their full potential as human beings?”

“And if you get that wrong, you squander their potential and they never get that back,” he warns. “It’s a sin. It’s a sin to them to waste their time and energy and the finite time they have on Earth. It’s a sin to society.”

About the author

Vivian Giang is a business writer of gender conversations, leadership, entrepreneurship, workplace psychology, and whatever else she finds interesting related to work and play. You can find her on Twitter at @vivian_giang.

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