When is an organizational structure flat?

Flattening organizational structures is seen as a means to increase organizational agility and reduce micromanagement. Here are three practical examples highlighting key advantages and disadvantages of flat organizations.

Defining flat structures

There is no absolute definition of a flat organizational structure since they can only be defined in relative terms. Hence we propose the following definition:

A flat structure (or a flat hierarchy) is an organizational structure that has significantly fewer management layers and significantly wider spans of management control than another organization, for example, an organization of comparable size, in the same industry (or an organization unit in the same corporation), with a similar business model and purpose.

Vice versa, an organization that has significantly more layers and narrower spans of control can be described as a tall organizational structure.

Flat organizational structures in this sense are characterized by the way in which managerial hierarchy is played out. Generally, the sizes of teams reporting to a single boss are larger in a flat organization. All other things being equal, in a flatter organizational structure, there is less capacity for managerial oversight and control of task execution. Thus, in companies with flat organizational structures, there is a reduced likelihood of extensive micromanagement.

And flat management structures have less manpower in the middle management layers of the organization. Senior managers are therefore closer to frontline workers in flattened management hierarchies.

Three examples of flat and tall organizational structures

Here are three examples to highlight key considerations that lead to flat or less flat hierarchical structures.

A fast growing ICT company confining its structure to two management layers only

One of our clients at Management Kits is a fast growing ITC company that never wants to go beyond two management layers, despite having grown far beyond 100 people in a short period of time. Beyond the executive board, there is only a single layer of unit managers. The founders believe that adding an extra layer would add unnecessary complexity and friction, and would not solve the coordination problems that have accompanied their growth in a meaningful way.

Therefore, the company constantly has to come up with alternative solutions to these issues. For example, they have constantly refined their meeting and collaboration formats between business divisions and functional divisions to ensure fast and high quality decision-making. They are constantly exploring additional mechanisms of self-organization so their people can act in an entrepreneurial way and are not conditioned by hierarchical reporting relationships.

A large financial services institution: a span of control of >6 is a no-go

Consider, in contrast, the example of a large financial services institution that we supported in numerous organization design and transformation projects. In that company, which is an established leader within its industry, the average span of control across middle management layers was five to six. Bosses generally saw larger spans of control as an imposition, mainly because of the need to exert full control over the work and output of their teams, and the burden of running extensive HR appraisal processes for their direct reports. As a result, the organizational structure was relatively tall and silos were “high and thin”, and the distance between senior managers and the rest of the organization was culturally and structurally huge.

Formal flatland: the case of Valve

One of the most radical ways to instill a flat structure can be seen in the solution found by game development company Valve*, with its “flatland company” paradigm. Officially, Valve has no standing hierarchical line organization, other than temporary structures that projects - or Cabals, as they are called at Valve - may choose to instill. A number of mechanisms serve functionally to make up for the lack of both an organization chart and centralized coordination by senior leadership. First, there is the “employee handbook” that defines general expectations for the company’s employees (functionally replacing the formal boss, who would otherwise have the authority to tell employees what to do). Second, the nature of Valve’s business - long-running game projects for users with subscriptions - provides a basic, product-based structure in any case. Third, the organization developed pronounced informal structures and hierarchies in the absence of formal hierarchies, which means that the organization is officially flat, but socially it is not.*

What are the key advantages and disadvantages of flat and tall organizational structures?

The key advantages associated with flat hierarchies are faster decision-making, reduced micromanagement and greater empowerment, and a leaner, less costly middle management structure:

1. Given the reduced structural distance between the frontline organization (whether it’s the sales team, operations, or development), information can flow faster and decisions can be made in a better and quicker way. Information flows are not moderated by different layers of middle managers with potentially diverging agendas

2. As mentioned above, larger spans of control make micromanagement harder - and thus less likely to occur. Incentives that allow for shared leadership and an empowering leadership style are greater.

3. Middle managers are crucial players for the effectiveness of large organizations. But they are also costly. Flattening your structure can be a lever to reduce overhead costs in your organizational structure.

If you come from a tall structure and want to transition into a flattened structure, it won't necessarily come without tradeoffs - which could be understood as disadvantages. The organizational change can be significant and could involve a major, costly effort. The demands on middle management will increase in a flattened structure, requiring supporting measures, such as the reduction of administrative and bureaucratic burdens. Potential concerns regarding compliance and control will have to be addressed. And in the wake of flattening work, some companies use the opportunity to explore additional mechanisms of increased self-management and shared leadership within their flat company structures.

* Bernstein, E., Gino, F., & Staats, B.: Opening the Valve: From Software to Hardware (A). Harvard Business School Case 415-015, August 2014