Organisational change in an age of disruption
The traditional corporate structure is a tried and tested method of running a business. With the head of the organisation at the top, defined layers of management, and a mass of junior workers at the bottom, everyone knows who they’re accountable to and what is expected of them. Or so goes the theory… In practice, traditional corporate hierarchies often impede decision making, make it difficult for businesses to respond to problems, and leave employees feeling disempowered.
Today, many organisations are moving away from traditional hierarchies in an effort to improve productivity and business performance. But what is the next generation of corporate structures? Are they effective, or simply a case of style over substance?
The problem with hierarchy
Corporate hierarchy exists for a reason. The accepted position is that defined business roles and a network of managers creates clear channels of communication, as well as distinct avenues for employees to work their way up an organisation. What’s more, hierarchy is often cited as helping to secure businesses structurally in the face of threats, since it unifies them against competitors.
In spite of this received wisdom, a 2017 report by Stanford Business School resoundingly rejects these claims. Research showed that rather than unifying teams, hierarchy actually made individuals turn on each other when they competed for work against rival groups. Employee cooperation was promoted by egalitarian operating methods, where each team member’s voice was valued equally. Could flat management structures – the complete absence of hierarchy – therefore be the way forward?
A flat organisation has few – if any – different status levels between employees. This reduction in middle management has characterised a shift in organisational structure in recent years. A research study found that from 1986 to 1999, there was an increase in the number of managers who reported directly to their CEOs. These weren’t small, maverick companies, but large organisations with an average of nearly 50,000 employees.
Along with a general trend towards flatness in large corporations, many of the startups which have flourished in the digital age were founded with completely flattened structures, or have instituted flatness as they have become more established. In one example of an alternative to corporate hierarchy, Holacracy – a philosophy of self management – has notched up over 1,000 business subscribers since it was launched in 2007. Its mantra of distributing authority throughout an organisation hopes to ensure that decisions are made locally and that everyone’s voice is valued.
Whilst this aim might be laudable, flat businesses don’t always please everyone. In May this year, Elon Musk announced that he would be flattening the management structure at Tesla in an effort to cut costs. With the defection of several senior executives seemingly coinciding with this statement, there are questions over whether or not Tesla employees are happy with this news. Restructuring to a flat business may well be a way of optimising performance, but it can also be a label for CEOs to hide behind when they want to trim back expensive employees.
Whilst any major restructuring will bring uncertainty and its own set of challenges to a business, several high profile success stories show that hierarchical change can bring significant benefits. In 2014, Microsoft consolidated its different products and platforms in order to remove internal competition. Two years later, it merged the Microsoft Research Group, Bing, Cortana and Information Platform Group into the new AI and Research Group. In 2015, Google underwent a similarly complicated restructuring which saw the creation of its parent company, Alphabet. Whilst the motivations behind this move weren’t one hundred per cent clear at the time, the company’s share price has more than doubled since 2015, so Alphabet must be doing something right.
Regardless of the various reasons which might exist for restructuring a business, it is important to bear in mind what hierarchy means for the psychology of the employee. Whilst some level of management might be necessary for a business to actually make decisions, when workers don’t feel empowered, when managers are ineffective, or when senior staff take credit for other peoples’ work, employee morale suffers. The benefit of flat businesses therefore lies in valuing workers as individuals. If any inspiration were needed for this philosophy, it comes in the form of Valve Corporation, a gaming and software company, which has been successfully boss free since 1996. Middle managers, your days could be numbered.
How has the structure of your business changed in recent years? Why are some organisational structures appropriate for some companies, but not others? Is the flat business simply the next trend in management structures? Share your thoughts.
Research and Insights Manager
Sarah is renowned for her ability to communicate complex concepts with clarity. She plays a central role in managing the insights programme at Foundry4.