For decades, companies had looked to the largest corporations in the world for inspiration when defining their own leadership structures. Upper management passed information down to subordinates, who communicated with their own employees. Direct communication between the upper echelons and non-supervisory staff became a rarity in this corporate structure, which can lead to disconnect between the people making the big decisions and those interacting with customers and products every day.
The phenomenal success of tech startups has changed a lot of this. As companies like Facebook and Google have grown, they’ve drawn attention to the many benefits of a more casual, less traditional work environment.
As a result, top millennial talent has begun to search for jobs that offer this type of workplace, which means businesses of all sizes and types must consider creating new cultures in order to keep competitive. Here are some ways this startup influence is helping change the way businesses are structured.
Flat structures borrow heavily from how startups work.
With a chain of command in place, employees are usually expected to communicate directly with their supervisors, never skipping that important step to speak to someone of a higher rank. Flat organizations will often remove those ranks, considering most everyone within a business as an equal.
One of the most well-known examples of a flat corporate structure is Valve, a video game maker in Bellevue, Wash. As Valve describes in its employee handbook, everyone is a peer, although some employees can be given temporary lead status as they work on projects with the colleagues.
Research has supported how corporations are flattening. One study found that the number of division heads who report to a company’s CEO has increased by 300 percent since 1986, with the number of levels in a company declining by 25 percent in that time. While most large corporations are not completely eliminating their hierarchies, there does appear to be a tendency to put fewer layers between CEOs and their lowest-ranking employees.
Flat structures reduce cost and save time.
Taking a cue from startup founders, corporations have reconsidered hiring the middle managers who once made up much of their workforce, saving money along the way. Business experts estimate that excess management costs $3 trillion a year in the U.S. alone. A flat corporate structure requires far fewer managers, letting businesses channel that money toward other resources.
Another byproduct is an increase in morale. Instead of waiting for someone in upper management to make a decision, employees are encouraged more to participate in the decision-making process, offering ideas and attending brainstorming sessions. This type of environment tends to reduce employee turnover, especially among younger generations of workers who want a shot at demonstrating their worth. This also gives managers more time to focus on building their business rather than recruiting, interviewing and training replacement workers.
Growth and the birth of ‘management light.’
As popular as flat structures are becoming, there are a few downsides, as demonstrated by the companies that have abandoned them as they’ve grown. Zappos was long-used as an example of a business that retained its growing business with a startup-like culture as it grew. However, its shift toward a management-light structure created “chaos and uncertainty,” as one employee explained. Realizing employees needed more guidance and leadership, Zappos shifted to something called a teal structure, which brings more flexibility to leadership within an organization. With teal, managerial roles are adjustable and ever changing, but employees also manage themselves.
Great leadership doesn’t have to be all or nothing. Some businesses have chosen to play with the many options in-between a flat structure and a traditional hierarchical one. This allows them to create a management structure that works best for their unique environment.
One thing is clear; business leaders are watching all of this and looking to implement what works, now and in the future. While flat structures are an effective way to create a more flexible environment, especially for small- and mid-size businesses, there are many variations on this theme. These types of structures aren’t for every type of business at all stages in their growth. Company leaders will want to consider mixing and matching flatter company structures with more traditional ones, to best suit a company’s unique environment.