Plain and simple, every business needs organisational structure which determines how the organisation will operate. It can include employee communication, scheduling, delegation, payroll, human resources, and every other aspect that makes the company operate on a day to day basis. Two of the most widely accepted structures found in work-places around the world are a flat organization and a hierarchical organisation. In these blog post we are going to look at the potential pitfalls of the Flat Organisational Structure, but for a balance, please take a look at our blog post The benefits of a flat organisational structure
What is a flat organisational structure?
Flat organisational structure is an organisational model with few or (in most cases) no levels of middle management between the executives and the staff level employees. It was designed with the idea that knowledgeable and well-trained workers will be more productive when they are directly involved in the decision-making process of the organisation, rather than being supervised by many management layers. In other words, employee involvement is promoted by decentralising the decision-making process and elevating the levels of responsibility of employees. With this organisational structure, customer comments and feedback will reach all the personnel involved in the decision faster, enabling the company or organisation to make a rapid response to customer feedback.
Most frequently, flat organisational structure is seen in Start-Up’s and SME’s where there is a lack of middle managers because there are too few employees, the business owner or business head may perform some of the functions that middle managers in hierarchical organisations perform. Some companies, even when they have already grown or expanded retain a flat structure. This is especially true in those organisations with self-managing teams, where individual staff organises and performs their own work without the need for close supervision.
How a flat organisational structure can inhibit growth.
Let’s use an example that many business owners bring to us at IMentor – whilst a business is developing from the start-up position, projects are predominately small and simple, as is the personnel available, so a small team would orbit around the project, and the simple project is delivered efficiently. As the business grows, so does the size and complexity of projects and the size of the teams involved – invariably complex projects need multiple opinions and specific requirements. A frustrating pattern of events tend to occur, the project is scoped, tasks are assigned, yet deadlines are missed, organisation is lacking, requirements always seem to be unclear and teams almost begin to work against each other. Even worse, nobody seems particularly motivated to drive work home. And with nobody steering the ship (or worse, multiple stream owners making decisions in silo’s and not communication with others) and a general sense of uncertainty about who should lead, and when. This results in things usually needing to reach a crisis point or needing to float all the way to the top of the chain to get done.
This then turns into an internal blame game, often resulting in the blame being incorrectly appropriated towards a specific department or leader and then turns into a political minefield. This becomes a vicious circle borne out of a simple lack of structure, organisational structure provides guidance to all employees by laying out the official reporting relationships that govern the workflow of the company.
What’s is the significance of a clear organisational structure.
A formal outline of a company’s structure makes it easier to add new and establish new positions in the company, as well, providing a flexible and ready means for growth. Additionally without a formal organisational structure, employees may find it difficult to know who they officially report to in different situations, and it may become unclear exactly who has the final responsibility for what. Organisational structure improves operational efficiency by providing clarity to employees at all levels of a company. By having an organisational structure to reference, departments can work more like well-oiled machines, focusing time and energy on productive tasks. A thoroughly outlined structure can also provide a roadmap for internal promotions, allowing companies to create solid employee advancement tracks for entry-level workers.
So, what are the disadvantages of a flat organisational structure?
1. Management Can Easily Lose Control
As mentioned above, this structure is popular and natural for startups and small business where the number of employees is still manageable. The system can pose a problem to the whole organisation when the ratio of employees to managers become out of proportion. The management can easily lose control when there are less people to put a brake on bad behaviors and less individuals to support or back them up on their decisions or changes they propose.
2. Management Roles Can Be Confused, New Roles Undermined
One of the major issues of a flat structure is that seniority is sometimes earned by “time served” – the amount of time that an individual has been at the organisation rather than the skill set that person has, this can restrict the growth of a company and can certainly restrict the willingness to change people, policies and processes – which will eventually damage the business growth. Once a business owner sees this, the tendency is to bring in a “manager” to address this, but, if a clear structure is not in place – what inevitably happens is the new employee is thrown into an internal political battlefield.
3. Work-Relationship Could Struggle
When managers have too many people to manage every day, they may find it difficult to connect with their employees on a personal level, which is crucial in maintaining trust and in stepping up the baseline of employees’ responsibility and accountability for the work and the organisation as a whole. This con can have a great impact on the issue of respect and morale of an organisation on levels of authority.
4. It Can Create Power Struggle
Under a flat organisational structure, it is observed that employees often lack a specific boss to report to, especially when the owner or CEO is not around. This can create confusion and possible power struggles among management employees. Again personell whom have worked for an organisation for a considerable time consider that their opinions should be valued more than other, more recently employed colleagues – regardless of the experience or expertise. Empire building can be rife in this type of organisation – particularly when the business owner / CEO is not a constant presence, with key personell paying lipservice to the business owner / CEO, yet continuously undermining their decisions and even personality traits whilst simply doing exactly what they wanted regardless of the organisations strategy.
5. It Makes Employee Retention Difficult
Who does not want a promotion? Excellent employees who are looking for an improvement in their rank, aside from an increase in their salary, may find it hard to find job satisfaction in this kind of organisational set up. They may end up looking for a job somewhere else where they believe their efforts will be rewarded with a promotion or that promotion is dependent on results and achievements, not governed by personalities, time at the company and how popular you are.
6. It May Hinder Growth
Change is often times difficult and poses a lot of what ifs. Because of this, management may decide against new opportunities in an effort to maintain the structure which, as a result, may limit the long-term growth of the organisation.
7. There Is Less Motivation
While a flat organisation structure may lessen the problems caused by unhealthy competition among employees, it makes it harder for ambitious workers to move up the ladder as there is very little room up there. This could easily erode motivation, giving people no reason to take the extra mile in their work.
8. Can Result to Role Confusion
An employee may go to work for a flat organisation expecting to fulfill a defined role, but find out later that he or she needs to do many pieces of other jobs. This makes it hard for workers to focus on their tasks and specialise at their jobs. It also adds to unneccessary inputs – individuals whom have strong idea’s on how a team should deliver or believe that a certain focus should be applied – often give unwanted contributions, interruptions and meddling – directly reducing the effectiveness of that team and undermining the actual manager of that team.
The most important thing for a business owner / CEO to do is acknowledge that changes in company size and / or complexity should provoke a review of the fundamental structure of the organisation. After all, Flat and Hierarchical structures have different advantages and disadvantages.
Before a decision is made on which structure suits them best, the needs of the company must be defined. As we mentioned, the size of the company, the number of employees, the type of work being performed, the company budget, and the company goals must all be taken into account before deciding which structure should be used. After all the needs of the company have been clearly defined, only then can the structure be chosen. The structure which is more suitable for their company needs, promotes growth, encourages a happy productive work place, and creates as much revenue as possible will typically be the right choice for each company or business.
In a new Harvard Business School working paper, Julie Wulf writes:
In line with the conventional view of flattening, we find that CEOs eliminated layers in the management ranks… But, using multiple methods of analysis, we find other evidence sharply at odds with the prevailing view of flattening. In fact, flattened firms exhibited more control and decision-making at the top. Not only did CEOs centralize more functions, such that a greater number of functional managers (e.g., CFO, Chief Human Resource Officer, CIO) reported directly to them; firms also paid lower-level division managers less when functional managers joined the top team, suggesting more decisions at the top. Furthermore, CEOs report in interviews that they flattened to “get closer to the businesses” and become more involved, not less, in internal operations. Finally, our analysis of CEO time use indicates that CEOs of flattened firms allocate more time to internal interactions.
When middle management is stripped away, then, the powers it once held don’t necessarily flow down to frontline team members. Instead, these decisions often get relocated to the very top of the organization. Or, in other words, flattened firms often look less like a democracy of empowered citizen-employees and more like a monarchy, with “a more hands-on CEO at the pinnacle of the hierarchy.” The findings may have come from studying large companies, but small-business owners and founders are probably not immune to these unintended effects.
