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Improve Operations by Restructuring

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Transitioning from Vertical Hierarchies to Decentralized / Flatter Organizations

The need to restructure for traditional, bureaucratic firms is essential in the fast paced, dynamic business world today. Team-based organizations are largely successful in having all of the people in the firm feel accountable and responsible for the operation and success of the enterprise, not just a few people in senior management positions. This increased sense of responsibility stimulates more initiative and effort on the part of everyone involved…substituting peer for hierarchical control, teams permit removal of layers of hierarchy and absorption of administrative tasks previously performed by specialists, avoiding the enormous costs of having people whose sole job it is to watch people who watch other people do the work.

I’ve personally observed the detrimental effects of retaining the top-down structure in the present business climate. While working for a fortune 1000 engineering firm a few years ago, I was surrounded by some of the brightest programmers and senior-level engineers in their fields of study. They’d been with this firm for decades and possessed outstanding ideas for new products, services and streamlining processes.

As a middle manager, I worked directly with our front-line personnel and served as an informal sounding board for many of the ideas that they’d come up with over the years. It was astounding to learn that quite a few of them had made continued attempts to present their thoughts to supervisors, engineering directors and even executive management. The organization unfortunately was extremely hierarchical.

The engineers became frustrated in their attempts to bring ideas to fruition because of the rigid bureaucracy, which made it very difficult for them to locate and contact the appropriate people. Communication across the many layers of management was made difficult and employees were left no alternative but to accept the status quo.

This company consistently generated $150 million in revenues each year but could never surpass that figure. Yet even in the latter years, as sales steadily declined, top management stubbornly refused to listen to their own engineers for innovative ideas that could easily have revived the organization, potentially enabling it to exceed its profit ceiling of $150 million.

I witnessed, first hand, how vertical organizations effectively restrained creativity and ignorantly adhered to antiquated practices that had been successful 20 years ago. By the time senior management made the final decision to introduce new products, it was in an irreversible tail spin. Our competitors with their, strong adaptive cultures and de-layered organizational structures had beaten us to the punch. They were able to acquire huge shares of our market by offering products that our very engineers had recommended years ago.

Making swift, informed, decisions is a critical element for success in todays hyper-competitive, constantly changing business environment. Innovation, for most companies is fundamental to remaining competitive. Famous Harvard strategy professor Michael Porter once said that strategic superiority ultimately comes from innovation. Innovations allow companies to race ahead of competitors and thus build costly competitive entry barriers that discourage competitors. Innovation-centric corporate cultures are inherently dynamic, ever-changing.

Flatter organizations are much more adept at managing organizational change since decision making is placed in the hands of those on the “front-line”. In this era, decisiveness is critical. Horizontally structured organizations with fewer layers of management are able adjust operations as needed without having to go “up the chain of command” for confirmation, permission and final approval from middle and upper-management.

Communication too moves much more easily across flatter organizations. Since horizontal structures are often team based, each group shares information, best practices and potential pitfalls with each other; making fewer mistakes and more sensible decisions. Again without layers of management creating obstacles to communication, organizations are better suited to managing change that’s become so pervasive in today’s business world.

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