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There’s been a dramatic shift in how modern businesses are organized. While certain structures made sense in the past, today, we’re witnessing new management structures born out of changing cultures and advancements in technology. Most notably, flat organizational structures have become popular alternatives for startups and other entrepreneurial ventures.

 

What is a flat organizational structure?

If hierarchal organizational structures resemble a pyramid, with the power concentrated at the top, flat organizational structures have fewer levels between the managers and the workers. Titles become less important while contributions are accepted from all roles within the company. Here are a few examples of companies with a flat organizational structure.

 

Benefits of a flat organization

Feedback and input from everyone. Instead of limiting the creativity and strategy to managers, everyone in a flat organization is encouraged to contribute and find ways of improving the business.
A shared sense of responsibility. Hierarchal structures sometimes push people to deflect blame to someone else (“It’s a management problem” or “the intern messed up”). Flat organizations force people to be accountable.
Greater communication and cost-effectiveness. When an employee doesn’t have to relay a single message through several middlemen, the company can work more efficiently, saving money and time.

 

Drawbacks of a flat organization

Harder for larger businesses to adopt. In companies of hundreds or even thousands of employees, establishing a flat organization can be chaotic.
Lack of specialization. Flat organizations (particularly startups) may have employees working multiple roles instead of focusing on a single discipline.
Confusing chain of command. Without a direct leader or boss to report to, it may be difficult to know who delivers assignments, and may even cause internal struggles and disputes.

 

What is a hierarchal organization?

Unlike a flat organization, a hierarchal organization has multiple levels, with the CEO sitting at the top. After the CEO, there is usually a secondary group of C-level executives (such as the Chief Financial Officer or the Chief Marketing Officer), who lead a group of managers. The managers can then lead another set of managers, and so on, until reaching the operational workers. Examples of a hierarchal organization: Apple, GE, Sony.

 

Benefits of a hierarchal organization

Clearly assigned roles. Everyone in a hierarchal organization knows what their title is, and what they’re supposed to do. There’s never any confusion about the roles and responsibilities of each person, leading to greater specialization.

An incentive to succeed. Hierarchal organizations are designed to encourage employees to work harder and move up the organizational ladder.

 

Drawbacks to a hierarchal organization

Imbalanced cost distribution. Some managers may earn significantly more than their peers, leading to inequity and a greater cost for the company.
Bureaucracy and inefficiency. With so many levels and different departments, companies with hierarchal organizations may be slow to adopt changes or even grow. Consider implementing a new cultural program- it must first be taught to the C-level executives, then the managers, then supervisors, and finally to the operational employees.
Replaceable employees. Typically, hierarchal organizations are designed so that anyone can be replaced. Managers can be let go and subordinates promoted, while the lower level employees can easily be interchanged with new hires.

 

Should you have a flat or hierarchal organizational structure?

Since both structures have their own pros and cons, the question becomes: which one is right for your business?

First, consider your business’s size. Larger companies and corporations, particularly those with hundreds of employees, will not be efficient with a flat structure. In fact, there are very few corporations with a flat structure. Startups will almost always start out with a flat structure by design- with so few people, everyone will need to pitch in.

It’s also important to think about the nature or industry of the business. Flat organizations make more sense for certain businesses, such as a law firm, than others, like a major tech company. Hierarchal organizations are better for ensuring everyone specializes and has a role to play.

Think deeply about the kind of business you’d like to lead. Is it more traditional, centered around growth and efficiency? Or perhaps more informal, with more direct communication? At the end of the day, the choice is yours to make.

 

To receive more strategic tips and guides to running a business, visit Novel Coworking’s blog today.