Why it’s Time to Re-design Company Structures
And how leadership could work in self-managed teams and flat structures
This article by Erika Mendes is being featured as part of Flux Publishing’s Organisations To Organisms series. If you’d like to hear how Flux can help your organisation, please contact us here and we’ll be in touch shortly.
At a time when there is an increasing need for companies to become more agile, dynamic, adaptable and innovative, the majority of companies face bureaucratic processes often not ready to face difficulties that may lie ahead. The root cause of this problem ? Organisational design. This is a topic that is not often perceived by companies as a main issue but actually has a major impact on overall performance.
Reaction to Hierarchical companies
According to Robertson (2015, p.8), organisations face new challenges, such as increasing complexity, enhanced transparency, greater interconnection, shorter time horizons, economic & environmental instability, and the general demand to have a more positive impact on the world. Despite these internal and external pressures, traditional organisational structures do not seem to be embracing change. “The world is becoming more turbulent than organisations are becoming adaptable. Organisations were not built for these kinds of changes.” (Robertson, 2015, p.8)
The same way Laloux (2014, p.29) uses “machines” as a metaphor for the most common organisational structures, namely orange organisations, Boynton (2013) argues that instead of machines, businesses have to operate like brains. “They [companies] need to be fast, flexible, and adaptive, all of which require a robust flow of ideas. Ideas, in fact, have to be appreciated as important products of business in themselves” (Boynton, 2013).
Where the bureaucracy generated by hierarchical systems was once a protection for market position against new entrants, it has become a disadvantage for large firms, preventing them from achieving the agility they need to compete in new, fast-moving connected markets (Bryant, 2014). Krut (2012) argues that hierarchical structures complicate the innovation process and consequently the success of firms, as he states “spontaneous structures have a better ability to meet the needs of the firm and spur innovation”.
Deloitte (2016) conducted a study of Global Human Capital Trends in 2016 and identified that traditional companies are striving to become more agile and customer-focused. One of the trends that Deloitte (2016) identified is organizations shifting their structures from traditional, functional models toward interconnected, flexible teams. When speaking of organisational design, companies and executives aware of the changes required found that challenges still remained: where only 14% of executives believed their companies were ready to redesign organisations in an effective manner, 21% believed that they possessed at expert level the skill of building cross-functional teams, and only 12% declared they fully understood the way their people worked together in networks. (Deloitte, 2016)
According to Deloitte (2016), organisational design is the first on the rank of the top 10 human capital trends for 2016, but why is organisational structure so important for business success? Sisney (2012) affirms that organisational structure and design determines how they will perform. “If you want to improve organisational performance, you’ll need to change the organisational design. And the heart of organisational design is its structure.” (Sisney, 2012)
According to Deloitte (2016), the forces driving demand to reorganise and redesign company structure can be summarised into four main key factors:
Demographic upheavals
Younger and older workforces are sharing the same work environment but with different expectations. The young workforce brings high hopes for a rewarding, purposeful professional experience, constant learning and development opportunities, with dynamic career progression. On the other hand, the older workforce is being challenged to adapt from their roles as mentors, coaches and often subordinates to junior colleagues. Another challenge is a more diverse workforce that is formed by the global nature of business. These changes demand a focus on inclusion and shared beliefs to support both generations.
Digital technology
With the advent of new technologies such as mobile devices, 3D printing, sensors, cognitive computing and the Internet of Things, companies are forced to adapt their design and manufacture, delivering almost every product and service, while digital disruption and social networking have changed the way organisations hire, manage and support people. The challenge for innovative companies is to figure out how to simplify and improve the work experience by applying disciplines of design thinking and behavioural economics, and embracing a new approach called ‘“digital HR’.
Rate of change
Rapid business model innovation from companies such as Uber and Airbnb is the driving force, pushing organisations to respond by repositioning themselves quickly to meet new challenges. In a highly-connected, fast-changing world, events with low probability and high impact also seem to be more significant, reinforcing the need for agility.
New Social Contract
A new social contract is being developed between employees and employers, driving a significant change in their relationship. Establishing a career in one company is not a choice for many employees, as they are used to working for many employers and demand enriching experiences at every stage. “This leads to expectations for rapid career growth, a compelling and flexible workplace, and a sense of mission and purpose at work. Today contingent, contract and part-time workers make up almost one-third of the workforce, yet many companies lack the HR practices, culture or leadership support to manage this new workforce”.
Upon exploring the concept of organisational design the major resistance found comes from leaders within. At the same time, according to research, leaders are the most important assets required in order to implement change in company structure. Inertia to change is mainly due to fear of change as leaders can often feel frightened to lose power. For this reason, It becomes extremely necessary for leaders to become aware of alternatives to hierarchical systems, new methods of leading others and their role in this new organisational design.
This work will focus on exploring self-managed teams and flat structures to illustrate possible alternatives. The report uses academic research on organisational structures, self-managed teams and flat structures. To better understand flat structures in practice, qualitative research was also conducted in the form of interviews.
What is the role of leadership when implementing change?
When we look at hierarchical companies, the pyramid structure in place emphasizes that there will be leaders on the top and people responding to them. This kind of leadership structure usually employs a top-down decision making set-up, where leaders on the top of the pyramid hold most of the responsibility. According to Boynton (2013) this model is not really effective “Their [leaders] brains aren’t big enough to come up with all the ideas that need to be in play. Nobody’s brain is big enough. That’s why an organisation needs all hands (and minds) on deck”.
The Deloitte (2016) report shows that leadership is the second biggest trend for global human capital trends. According to them, “the traditional pyramid shaped leadership development model is simply not producing leaders fast enough to keep up with the demands of business and the pace of change” (Deloitte, 2016). Additionally Nayar (2016) states that considering today’s fast-paced marketplace, teams that need to rely on and wait for a leader to weigh in have lost the game before they start.
Robertson (2015) also argues that traditional companies, with a leader on the top can make companies more bureaucratic which negatively impacts the company’s growth.
“Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15%. But when companies get bigger, innovation or productivity per employee generally goes down […] In an urban environment, people share space and resources locally, understanding territorial boundaries and responsibilities. Of course, there are laws and governing bodies to define and enforce those laws, but people don’t have bosses ordering them around all time. If the residents of our cities had to wait for authorization from the boss for every decision they made, the city would quickly grind to a halt. Yet in our companies [with the Holacracy model] we see a very different organizing principle at play”. (Robertson, 2015)
According to Forbes.com (2012), the change needs to be started by leaders, otherwise the process can be seen as an obligation by everyone else. “Step one is to make sure this body of people at the top [leaders] is aligned and very urgently wants to accelerate and sustain strategy and change. If that is in place, and that model is in place, we can begin to cascade it down through the rest of the organisation in such a way that this population will want to move over and help create this new model, and want to accelerate and make change happen for it. That’s our experience. If not, what we end up with is trying to run change through a “have-to” environment or culture, and we begin to see it stop and slow down” (Forbes.com, 2012).
It is possible to identify some examples of organisational structures that are not pyramid based such as Holacracy, Sociocracy, Cooperatives and Flat Structures. After analysing the examples, flat structures seemed to be the best option for transitioning from a hierarchy to a self-managed structure. This is because most of the other models presented have a rigid structure. It means that if the model does not fit for a certain industry or team, they can not apply that system to their company. Flat structures do not present a rule of how they should be structured, it is just a concept that challenges huge hierarchical structures while working in self-managed teams.
Flat Structures
There is not a precise definition of what a flat structure is. Several authors describe it in different ways, but the concept of a flat structure can be summarised as “an organisation structure with few or no levels of management between management and staff level employees. The flat organisation supervises employees less while promoting their increased involvement in the decision-making process”. (Meehan, 2016). Some common characteristics that can be observed are reliability on a decentralised approach to management (Klenke, 2007), everyone is seen as equal (Morgan, 2015) and teams are often the fundamental building blocks in these designs (Meisel & Fearon, 1999).
Flat companies are built to adapt. They decentralise authority, share information, diffuse, distribute competency and require a high degree of employee involvement in decision-making (Klenke, 2007). “The flat terminology is not about grouping or structure, it is how the decisions flow inside the company, which is more peer-to-peer and less top-down” (Shah, 2015). Some other characteristics that can be related to flat structures, but are not present in all of them, are the absence of job titles, seniority, managers or executives (Morgan, 2015). Additionally, research has shown that reducing hierarchy can lead to more satisfied employees and speedier decision making (Zitek and Jordan, 2016).
Even with the resistance of some companies and employers, the results of implementing a flat structure can encourage companies to change as it is possible to see the effective impact of this kind of structure. Organisations from different areas such as non-profit, software companies, start-ups and large scale manufacturing have already shown through financial results that this can be an effective organisational design (Kastelle, 2013). According to Kastelle (2013), this model is not only effective for start-up companies and want to implement the model but also for companies that want to shift from a hierarchical system to a flat structure.
Primary Research
To obtain an inner vision on this topic, I conducted primary research in the form of interviews with employees that considered themselves as working in flat organisations or being part of a self-managed team. Leaders that implemented a flat structure in their company and field researchers were also interviewed to gain multiple angled insights. The key perceptions of a flat structures were:
Less bureaucratic
Since there is not a vertical structure of approvals such as in a hierarchical system, flat structures are often seen as less bureaucratic and more agile. The daily decision-making process also contributes to a faster process since each employee takes daily decisions without the need to scale up to management.
Freedom and Decision-Making
At the same time that the decision-making process makes the company less bureaucratic, it was perceived as negative for some of the employees. Overall, the decision-making process can be summarised as both challenging and constructive.
The decision-making process can be challenging because people do not always have the support during the transition from a hierarchical system — where you have a manager supporting decisions and deliverables — to a flat structure — where people need to be self-managed. A possible solution for that lack of support could be including a leader in the beginning to help the transition process.
It can also be challenging when the company needs to take a major decision. In this case, the company usually consists if employee’s individual opinions, described as a “chaos”. When too many voices need to be heard, the process cannot be described as agile. Better understanding how the group’s communication is being done can help to create a better process.
The self-managed aspect was seen as constructive in environments where there was a leader (coach) present to support employees. The advantages that were emphasised by the interviewees were more focus on performing likeable tasks, being more responsible and disciplined.
Collaboration
Flat structures were related to less competitive environments which incentivise collaboration between team members. People do not see each other as a threat so they feel more comfortable to share knowledge and support co-workers with their point of view. Collaboration also helps to create trust and transparency, which was pointed as one of the main benefits of a flat structure. All of those factors together contribute to a more friendly environment and encourage motivation.
Leadership
There was not an agreement on the leader’s role or even if it should exist in a flat company. Most of the employers think that the leader’s role is important if related to coach activities. Having a formal leader in a company on the other hand, was seen as something impossible to take out of the structure in the future. People start to rely on a coach as soon as they become supported by them and they will be seen as a vital part of the structure. A long term solution for that dependency could be leaders supporting employees to coach each other so they would not rely on only one person but the whole group.
Considering all of the interviewee’s opinions, the most part agreed that leaders do not have an adverse impact on flat teams, they are necessary. The leader’s role will change along the process since initial dependence is more focused on the individual development and later on, group maintenance. Activities that can be related to the leader’s role can be described as individual support, aligning the team’s goals, guaranteeing group values are being executed and that people have space to participate.
Recommendations and Toolkit
This toolkit aim is to support leaders that are interested in starting to implement a flat structure in their team or company. This is just one exercise suggestion for the starting process and can be changed according to the leader’s understanding of their group dynamic.
First, it is important to make clear some principles that could be followed when implementing a flat structure. The follow suggested principles are not rules and they do not restrict other principles to be added or changed. It is just an indication of good practices according to this project’s research. It is vital that these principles are agreeable to the team and changed if necessary.
Leader’s role
The first thing that needs to be taken in consideration is the leader’s role in a flat structure. The role of a leader is redefined and it is the leader’s responsibility to embrace it and to make the team aware of the change.
The difference between a traditional leader and a self-managed team coach/leader
It is neither a supervisory authority role, nor the person the employees will report to. It is the person that will support the group in an advisory process, coaching and mentoring people. Individuals are accountable for their responsibilities and the leader is not there to make decisions.
What is a leader in a self-managed team?
Typically the leader is responsible for:
· Developing and maintaining the team culture;
· Coaching and mentoring the team members;
· Implementing and championing self-management;
· Re-designing the company or group structure accordingly;
· Maintaining or adjusting workflow (structure);
All of which are aimed at making the self-managed dynamic perform, even within a company that works in a different way, and also to align the team within the company.
The leader will also facilitate the connection between the business and the group. Keeping others updated about what’s happening is vital, (for instance financial problems, business strategy changes, new clients, loss of clients, etc.) and being flexible to change their job description according to what the group expects from a leader. Always the focus is to maintain a self-managed team so the leader will not be overloaded with responsibility and the decision making process.
Toolkit Feedback and Future Improvements
It was not possible to test this toolkit since any company was open to spend time and effort in an experimental model. The backup strategy was to ask for feedback from researchers and leaders so I could improve the toolkit.
The main feedback received was in the principles’ section. GL (a leader that already has implemented a flat structure) thought that the principles suggested should not be seen as rules but just as an indication. To him, the principles need to come from the team and not from an external perspective.
“I think principles need to come from within the team […] As a toolkit, I think we can give indications but I think the team need to create and own the way they work” — GL, Leader of a flat structure
An organisational consultancy founder also helped to improve the Toolkit. He emphasised the importance of having a culture of responsibility & freedom in self-managed teams, such as the Netflix culture (Hastings, 2009). This is a way increase people’s ownership and getting things done. According to him, “‘it’s your job’ even if it’s not it is because if it needs to get done, it’s your job.”
JF also missed the ownership aspect in the toolkit. For her, it is important to understand how ownership can work for each individual in a self-managed team dynamic. She suggested an ownership rotation as a possible solution. In this case, each team member would be a project manager at some point. This topic seems to be an opportunity for future studies and can be added to this toolkit in order to better support leaders in the change process.
All of the feedbacks asked for a more visual toolkit. Due to graphic design skills limitations, that was not possible to implement for this publication but can be an opportunity for future improvements. A solution could be to build a more interactive platform where each section could be explored according to user’s interest, avoiding too much text.
After reading the full article, SP thought the recommendation and toolkit was a good solution to start implementing a flat structure and any improvement on the content was suggested.
“I could definitely use it as a starting point for implementing a flat structure”. — SP, Head of Marketing
Conclusion
The majority of companies still function based on hierarchical structures, despite that this organisational design has been shown to be outdated. There is an extensive list of factors pressuring companies to become more agile, while society asks for a workplace where purpose guides the principle for decision-making. It is time for a change and revolution in organisational structures. Self-managed teams and flat structures are examples of a more responsive ways to work, considering the current turbulent scenario.
This project explored the leader’s responsibilities when leading the organisational change, since they are the most important members as far as big shifts are concerned. Leadership showed to be still necessary in a transaction process from a hierarchical system to a flat structure but with a different role compared to traditional structures.
This article by Erika Mendes is being featured as part of Flux Publishing’s Organisations To Organisms series. If you’d like to hear how Flux can help your organisation, please contact us here and we’ll be in touch shortly.
