As the world of work continues to rapidly evolve, many companies are questioning the traditional structure of their organization. Instead, they’re looking to alternative management structures to enable them to stay agile and competitive.
If you’re in this exploration phase, or simply want to learn more about management structures, this article is for you. Below, we define five different management structures and discuss their benefits and drawbacks.
If you want to jump to specific section, click one of the links below:
1. Traditional hierarchy
This is the company structure that is familiar to most people. It’s a typical command and control pyramid structure, with information and decisions flowing from the top down.
- Clear authority and communication: Each employee knows where they stand in the chain of command. Individuals go to their manager to seek permission. Managers have the authority to organize, reward, and discipline their team members.
- Shared resources: Individuals doing a similar type of work will be grouped together on one team under one manager. This means they can easily share work-relevant resources and managers can effectively assemble them for projects. It also reduces the likelihood of duplicated work.
- Measurable progression: If an individual does well, they can gain a promotion. This gives them more power to effect change, and a clear way to measure their success.
- Silos: Working in isolated teams has its drawbacks. It often leads to silos, which reduces the communication and cooperation between teams. This leads to inefficiency, with teams attempting to achieve goals that don’t holistically serve the company.
- Slow progress: With more layers of hierarchy comes slower progress. Requests must make their way up to the appropriate level of management, then back down to the team level. This problem perpetuates as companies get larger and the hierarchy grows.
- Stress on leadership: With a large employee base and a small leadership circle, many requests make their way to the top of the decision-making ladder. This means an increased pressure on leaders with often small, inane, administrative decisions on projects that they’re not experts on. It leaves little room for leaders to actually lead.
- Reduced innovation: Employees are hired to fulfill their assigned roles and obey their managers. There is often little room for them to freely collaborate with other employees, reducing the chance for innovation.
- Poor employee experience: For those at the bottom, the employee experience is often less rewarding than for people working in other organizational structures. They generally feel more distanced from the organization’s goals and less able to impact progress.
When does this work?
This model is familiar to most people as it’s very widespread. The structure fits with all size companies, though it doesn’t enable agility in fast-changing markets. Most businesses still follow the traditional hierarchical structure.
2. Flatter structures
The elimination of layers of middle management has resulted in what Jacob Morgan, Author of The Future of Work refers to as ‘flatter structures‘. This structure is akin to the hierarchical structure, though it removes layers of middle management and encourages greater communication and collaboration between employees.
- Faster decision making: Jacob states that in flatter organizations, senior leaders, “focus on pushing the power of authority down to others instead of pushing down information and communication messages”. This higher level of autonomy throughout the business leads to faster decision making and frees up leaders to lead.
- More innovation: A flatter structure encourages employees to collaborate with one another. This not only breaks down silos but offers more opportunity for innovation at all levels of the company.
- Better employee experience: With more opportunities to work across the organization, the employee experience for those at the bottom is much improved. These employees have the chance to resolve issues rather than simply take commands from a line manager.
- Leaders reign: Power is still held by the few. Leaders have the ability to stop any changes they don’t want, even if those changes are backed by most employees. They also have the power to make any changes, even if the majority of people don’t want them.
- Lack of agility: The chain of command may be shorter, but that means there is a higher ratio of employees to leaders. If power is not effectively dispersed, individuals will still seek affirmation from leaders. This will significantly slow down the decision making process.
- May not work: Companies who do not fully embrace the ideology of the flatter structure could easily slip back into a traditional structure and its pitfalls.
When does this work?
Flatter organizations are the logical first step for large organizations that want to improve innovation and agility. “Instead of completely reinventing the entire company and introducing a radical new structure and approach to work, it achieves similar results in far shorter term and with much less effort and resource allocation,” states Jacob. According to Jacob, three examples of flatter organizations are Cisco, Whirlpool, and Pandora.
3. Flat structures
A flat structure sometimes referred to as a self-managed structure, has no hierarchy whatsoever. There are no job titles or seniority. Instead, employees can see all ongoing projects and join whichever they choose. If an individual wants to embark on a new project, it’s often up to them to secure funding and a project team.
- Only good ideas: Unlike in traditional hierarchies, ideas that cannot get backing will not be made. This means that a leader or manager cannot push through an idea that the majority of employees do not support.
- Employee equality: With no managers or seniority, every individual is viewed as an equal. Everyone has power over business decisions and everyone is equally responsible for the company’s progress. This often leads to a high level of personal investment from employees, leading high morale and a passionate, diligent workforce.
- A hotbed of ideas: As everyone has an equal voice, people can get together in any number of iterations and cook up new ideas. This means there is a chance for innovation to thrive and creativity to flourish.
- Informal hierarchies and cliques: It’s not hard to see how informal hierarchies can develop, especially for companies that have switched from a more traditional hierarchy. Similarly, cliques can form, with certain members preferring to work with only a set group of people. This undermines all the benefits stated above, and it can lead to a poor employee experience for those on the outside.
- Lack of promotion: A traditional measure of success is how many people you manage, and how senior your title. Without these things, some individuals may struggle to feel rewarded for their hard work.
- Lack of accountability: Without managers, there is an inherent lack of accountability. Employees who aren’t fully invested in the company may not put in the same amount of effort as others, leading to tensions and frustrations.
When does this work?
Small and medium-sized businesses suit the flat model, especially those who have always had a flat model. Effectively transitioning from a traditional hierarchy would be extremely challenging and require a lot of resources. Two examples of successful flat companies are game developers Valve and Gore-Tex creators W.L. Gore & Associates.
These are often comprised of a hierarchical organization with temporary satellite ad-hoc teams that generate new ideas and products. “The most common type of example with this structure is a company with an internal incubator or innovation program,” states Jacob.
- Innovation: Perhaps the biggest benefit of the flatarchy is the ability for a company to foster and fuel innovation. These flat breakaway groups have the autonomy and resources to suggest, explore, and develop ideas that lead to innovative breakthroughs.
- Dynamic: This fluidity means that a company has the potential to be dynamic while also having the benefits of a formal hierarchical structure.
- Attract top talent: Having the potential to create breakaway teams that incubate and develop new ideas gives companies the ability to hire top talent who are seeking this type of environment.
- Disruptive: With certain individuals being pulled away from their current roles into agile teams, this model can be quite disruptive to existing groups.
- Limited effect on hierarchical issues: The teams within flatarchies are not permanent, they are created when the need arises – for example, to develop a new product – and then disbanded. While this allows for agility, it doesn’t resolve any problems of the traditional hierarchy that the flatarchy is hung upon.
- High rate of failure: There is always going to be some level of failure when testing and exploring new ideas; not every idea will be a hit. However, the high rate of incubator failure often has nothing to do with this, but the company’s genuine investment in the incubator. “While companies love their incubators “they often stop short when the call for investment in these endeavors hits $1 million or more (aka, becomes significant). It is ironic that they hesitate just at the moment when jumping in with full support really matters to the success or failure of the initiative,” writes Executive Coach, Karyn Gallant.
When does this work?
This structure can work for large or small companies. However, it’s main focus is on innovation and idea-generation. Google is one company that has an internal innovation incubator for developing new ideas and products.
These are structures in which teams can be brought together and dissolved quickly to meet organizational goals. Rather than a formal hierarchy, teams have a set of simple, explicit, and public rules that dictate how work gets done. If anyone has an issue with a current process, they can raise and resolve this at regular group meetings. Two popular teams models are Brian J. Robertson’s Holacracy and Stanley McChrystal’s Team of Teams.
- Transparency and fairness: There is a strong emphasis on role transparency so that every individual knows who is responsible for doing what. If an individual has a question or a request, this clarity makes it easy for them to find the correct person without needing to go through a manager. Not only does this transparency save time and enable employees to take action, but it also builds trust amongst employees.
- Swift decision making: Decision making remains efficient because each individual has authority based on their expertise. No longer does an employee need to seek permission from their manager, who then asks their CEO, who isn’t an expert on the topic at hand. More decisions are made locally, within the team, as people have a clear understanding of the capacity and limits on their decision making.
- Purpose-driven individuals: In a teams model, every individual knows the overall direction of the company and their team, they understand the rules and the capacity of their role. With this clarity and lack of traditional hierarchy, employees become more liberated. They are often more forward-thinking and actively solve problems.
- Radical change: Switching to a teams model is a fairly radical change for an organization, which requires time and resources. Some of the cornerstones of the teams model, such as distributed decision making, can be brought into effect without this monumental change.
- Size restriction: In his article, Jacob expresses: “My opinion is that holacracy can be more viable for smaller or medium-size organizations or perhaps larger organizations that have started off with holacracy as their base operating model. However, it’s very hard for me to imagine a large organization with tens or hundreds of thousands of employees around the world implementing something like this.”
When does this work?
The teams model suits small to medium-sized organizations that are comfortable with power and authority in the hands of everyone. Zappos are big believers in holacracy, though Medium found that it didn’t work for them.
Gone are the days when a business had one management structure to choose from. Now, there are at least five models to work with, each with its unique benefits and drawbacks. While this may seem intimidating, it’s also empowering. Hopefully, this article has given you the basics you need to effect a change that will unleash your company’s full potential.
Request a personalized demo