Flat or Hierarchical: Which Organizational Structure is Best

Growth is always good news for any business. Growth, however, is often accompanied by growing pains. Part of that is an expanding workforce and the challenges of organizing, structuring, and managing it. One of the considerations is whether to adopt a leadership structure that is flat or hierarchical. This is a significant decision for an organization and one that may impact it in a variety of unexpected ways.

A flat structure typically has few, and even in some cases no, middle management. There is no management structure between a company’s executives and the staff level employees. As the organization grows and diversifies, a flat structure increases the number of direct reports to the chief executive or president.

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The guiding principle of a flat structure is that if employees of an organization are properly screened and qualified, well trained, and sufficiently motivated, they will generally be more productive if they are allowed to be more directly involved in the decision-making processes of the company. This necessarily means that employees are more directly involved with the C-suite of the company. In return, the employees of the company are theoretically more invested in the organization and its goals. At the same time, the company is more nimble, because it has faster and more frequent input from the employees on the ground.

Advantages of a flat structure

Small businesses, by their nature, usually start with a flat structure as they lack middle managers and have a relatively limited number of employees. Increasingly, businesses have attempted to maintain this structure as they grow. The results have been mixed. Below are some of the advantages of the flat structure.

1. Reduced supervision/dominion

A flat structure necessarily means that there is reduced control by managers over staff-level employees; if for nothing else the diminished amount of time that each manager has to spend with his or her reports. Some studies have shown a positive relationship between reduced control and employee productivity, meaning that the less time that managers spend micromanaging their reports, the more productive those employees become. The increased productivity seems to be tied to the bigger sense of responsibility that comes with increased autonomy. Employees also become more invested in the overall success of the organization.

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2. Productivity

With the reduction or elimination of middle management comes a boost in productivity and efficiency on several levels. The first is the elimination of layers of higher-paid employees. Second, with the increased input from staff-level employees comes more efficient decision-making, as the organization’s top-line management has more direct knowledge from the ground. Third, a flat structure tends to bypass the telephone game that occurs in a hierarchical organization where information has to be sifted through multiple levels of employees and/or managers before reaching the C-suite.

3. Enhanced retention

In addition to amplified involvement in decision-making, a flat structure appears to inspire creativity among the workforce. Together with the other advantages of this structure, these create greater investment and a sense of satisfaction in employees, which in turn translate into enhanced retention. While monetary compensation remains high on employees’ lists, a more inclusive organization and the ability to pursue their passions also drive loyalty and retention.

Where flat structures fall flat

It’s not all sunshine and roses when it comes to flat structures. They come with plenty of drawbacks. It is important that a business considers against its needs and desires before making a decision.

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1. Power plays and confusion

As a company grows and its workforce expands, maintaining a flat structure means that employees increasingly lack supervision and the involvement of a direct boss. With this decreased supervision and the corresponding increased autonomy comes assignments that are more vague and subject to change at the staff level, leading to less assembly-line behavior and increased confusion. Additionally, power struggles can become more prevalent, as both staff and managers tend to divert from their lanes as they become less defined.

2. Strained work relationships

Growth plus fewer managers mean decreased connection, counseling, and discipline as well. There is also less opportunity for mentorship and professional growth. Additionally, all that increased investment also comes at a cost in employees having stronger opinions about, and venturing outside of, their particular jobs. All of this can have a detrimental effect on employee accountability both personally and for the organization as a whole. This can result in the depletion of employee morale.

3. Loss of control

Maintaining the flat structure as the workforce grows means that there are a higher number of staff level employees reporting to executives. That can result in an obvious reduction in control by management. With this comes not only less control over the productivity of employees but also a reduction in managers’ ability to identify and address bad behavior or decision-making.

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4. More generalists, fewer specialists

As a company grows and becomes either more diversified or more focused, a flat structure can struggle producing specializations, particularly at the management levels. As a business matures, its market and customers require more specialization. This is another potential drawback of a flat organization, which tends to have less defined lanes.

5. Stunting growth

While a flat organization emphasizes creativity and increases investment by employees at all levels, it can also stunt a business’s growth. Changes in a flat structure come with greater uncertainties and risk. As such, executives and managers can demonstrate a certain degree of reluctance when it comes to deciding in favor of new opportunities.

Deciding whether to adopt a flat or hierarchical structure requires careful thinking. The decision may be different depending on the type and size of the business, the industry, and the abilities of its managers. However, growth usually favors, and may even mandate, the adoption of a more hierarchical structure.