Organizational structure plays a critical role for both a company and its employees. Many factors influence how a business, its style and culture ultimately develop.
How you structure your organization – specifically, the layers of management you introduce into your company and how you arrange employees underneath them – impacts many critical aspects of how you do business:
- How your employees complete tasks and the processes that guide their day
- Who monitors employees’ performance and acts as quality control
- How people communicate
- How decisions are made and implemented
- How you carry out your business strategy and achieve big-picture goals
- How nimbly your company adapts to challenges or acts upon key opportunities in the marketplace
- What type of experience your customers ultimately receive
- What type of culture you have and how happy your employees are working within it
As your organization grows in numbers of staff and complexity, it becomes even more critical that you solidify your structure – if you want to perform at a high level, keep your employees satisfied and provide excellent customer service.
So how do you proceed?
First, let’s define the two primary structures and the management style associated with each.
Vertical vs. flat structures
A company with multiple layers of management often is said to have a vertical organizational structure. This means that between top management or executives and frontline employees, there are several layers or levels of middle management.
With this structure, centralized management – typically a CEO – holds the position of power and delegates authority to leaders and managers who in turn manage employees through clear lines of authority.
Occupying the widest bottom level are your front-line and entry-level employees. As your organization increases in size, the pyramid becomes taller.
On the other hand, a flat structure eliminates many – if not all – layers of management. Top management is in direct contact with frontline employees.
Characteristics associated with vertical structures
- Centralized authority and top-down decision-making
- Uniform standards and typical well-defined roles and responsibilities, along with a clear chain of command
- In general, there is more direct managerial oversight, with greater numbers of managers overseeing fewer employees and in more targeted areas of focus
- Common with larger companies
Characteristics associated with flat structures:
- Decentralized authority and lateral decision-making
- Focus on teamwork, collaboration and group problem-solving
- Fewer managers overseeing larger numbers of employees, covering broad areas
- Frequently seen with smaller companies or startups
Pros and cons of vertical and flat structures
These are two very different approaches to structuring your organization and managing your people.
Let’s examine the pros and cons of each type of organizational structure to help you understand why you would want to pick one over the other.
Pros of vertical structures
1. Vertical structures can easily be scaled.
When the company is growing, it’s easy to increase personnel and add management.
2. There’s a clearly defined hierarchy.
It’s often documented in an organizational chart. Employees know exactly to whom they need to go for specific questions or help resolving issues. They also understand the chain of command that connects them to the top of the organization.
3. There are clearly defined roles and accountability.
This is also commonly documented in an organizational chart. Everyone understands their function and what they’re responsible for, and the functions that other colleagues perform can be quickly identified.
In this scenario, it’s easier to document performance and ensure standards are being met. Poor performers have less opportunity to fly under the radar.
4. There’s more structure for measurable employee growth.
This centralized model:
- Encourages efficiency
- Promotes collaboration
- Provides opportunities for further development of professional expertise
- Creates a path for growth within the organization
Plus, with employees understanding their role, they can easily pick up greater knowledge and expand their skill sets as time goes on. There can be quite a bit upward mobility and the opportunity for advancement for those who want to make a career of a job.
5. Managers can emphasize the people side of the business and pay more attention to their employees.
This more direct, personal managerial oversight means that employees have the opportunity to enjoy greater support and closer interaction with their managers, which can result in better performance management and more professional coaching and development.
Cons of vertical structures
1. It’s more expensive to maintain all this overhead.
Vertical structures typically mean greater costs. Salary expenses are greater.
2. There’s the potential for an ongoing disconnect.
Because upper management and lower-level staff are separated by multiple layers of management, there’s the potential for a lack of transparency and visibility into the goings-on at the top of the organization. This can make employees feel like they aren’t getting the full picture and don’t have as much of a stake in the organization.
3. With a heavy emphasis on individual roles, there can be a tendency to operate in silos.
Employees can develop a too-narrow view of your company in that they focus only on their own tasks and how they support the goals of their department, as opposed to how they fit within the overall goals of your company. Cross-departmental or cross-functional collaboration can also suffer.
4. More direct managerial oversight can lead to micromanagement.
This can frustrate employees and diminish morale. For highly skilled workers this structured hierarchy can limit creativity.
5. Multiple layers of management can lead to slow decision making.
Making decisions might be efficient but acting on those decisions – as well as communicating changes in policy or procedures, or announcing new strategies and initiatives – can be slow and cumbersome because directions have to be filtered through all the layers of management.
6. New and good ideas can be lost if too many people have to approve of them.
A lengthier and more complex approvals process – which involves consulting with many managers at different levels – can stymie new ideas and innovation.
Pros of flat structures
1. It’s less costly.
When an organization does not have to pay so many manager wages, those funds can be reinvested elsewhere in the company.
2. Organizations are more nimble and agile.
Leaders and employees can enjoy a faster pace of business – such as faster response time to changing conditions or customer preferences.
3. Decisions are made faster.
The executive (or C-suite) can obtain pertinent business information directly from employees to make business changes. In addition, fewer bosses mean fewer conflicts and more agility and flexibility to accept new and different ideas.
4. Communication is more succinct.
Because this organizational structure is based on direct contact, there are fewer opportunities to misinterpret feedback or ideas.
The executive (C-Suite) can gather information directly from the source, which can limit the amount of miscommunication that occurs in the workplace. At the same time, the front-line staff receives direct communication from the executive (C-Suite), allowing each worker to make clear adjustments to their responsibilities when necessary.
5. Employees are autonomous.
Employees are empowered to make decisions, which can boost their confidence and engagement.
The level of independence is increased as there are fewer eyes looking over their shoulders or criticizing their ideas. Highly skilled workers excel in this environment as their creativity is encouraged.
Cons of flat structures
1. Bad decisions can be made under the guise of expertise.
The executive (C-suite) relies tremendously on front-line employees and decisions could be made based on false expertise.
2. The lines between individual and group responsibilities can become blurred
This can happen to the extent that it’s not clear who’s underperforming or exceeding expectations, or where there’s overlap in work assignments.
When employees wear multiple hats and assume responsibilities that fall outside their formal job description, it can negatively impact their ability to focus and put in their best performance on their designated tasks.
3. Flat organizations assume that each employee will give their best every day.
As a result, employees lack close supervision. There are less checks and balances for individual and team productivity.
In addition, there is limited growth for highly skilled workers. There are few advancement opportunities if employees are unable to advance upward through the chain of command.
4. This organizational structure is difficult to scale.
If a company experiences high levels of growth over a short period of time, there is an increased risk of negative workplace experiences such as poor decision making or unproductive behaviors.
5. A lack of central decision-making authority can make everyone less efficient.
Although access is a benefit, because there are not continuous lines of communication between varying departments or teams, a lot of time can be wasted when trying to be innovative.
Plus, there can be prolonged debates and inaction if a majority can’t agree.
All of these factors can create challenges for organizations as they grow.
Which structure should you pick?
There’s no right or wrong answer. No one-size-fits-all solution.
Your decision on which structure to choose hinges on what you’re trying to achieve as an organization. Whichever path you select, your organization’s structure needs to support this.
As your company grows, you have critical decisions to make. Ask yourself:
- What type of organization do you want to be in terms of culture?
- What are your values?
- What are your organizational goals?
- What type of team do you have?
- What do your customers expect?
- What are your current work processes?
- Which structure best suits where you are currently and where you want to go?
There are benefits and advantages to each option, and both have worked well for many different types of successful companies.
Tips for implementing either structure
No matter which structure you adopt, try to incorporate the strengths of the other to mitigate weaknesses.
For example, if you choose a vertical structure:
- Encourage employees to seek out colleagues both within and outside their department for collaboration opportunities.
- Train your managers to be strong mentors who can delegate control rather than micromanage.
- Find opportunities for top management to have more face time with lower-level staff.
- Prioritize your internal communications plan. How can you reach employees across your organization efficiently and effectively? How can you keep your people engaged and help them feel more valued and part of a team?
- Study your processes to determine what can be made more efficient so your organization can respond faster to changes.
Likewise, if you opt for flat structure:
- Be careful to not let your workplace devolve into confusion or chaos. Just because your organization isn’t tiered doesn’t mean you don’t need a written-out organization chart defining roles, responsibilities and reporting relationships.
- Recognize that, ultimately, you do need strong management to serve as the final decision-maker, judge of performance and disciplinarian, as necessary.
- Train your managers on how to avoid stress and burnout in handling several direct reports.
Summing it all up
You have two main options for how to structure your organization: a vertical structure or a flat structure.
Both options have their advantages and drawbacks. The structure that you select and implement must align with the unique needs and goals of your business. Ideally and when feasible, you should incorporate the strengths of the other structure so you can mitigate some of the downsides of the structure you’ve selected.
For more information on creating a functional workplace structure – like having multiple layers of management – and supporting a positive, successful working environment, download our free magazine: The Insperity guide to being a best place to work.