keep it slim

March 16, 2018

In recent years, many companies have moved towards de-layering or removing managerial tiers to create a flatter organization for various reasons. While for some it has been a matter of cutting costs through reduced headcount, for others it has been [triggered by] the need for agility and quick decision-making in a fast-changing business environment.

It is not just small organizations or new-age economies such as IT, ITES, and ecommerce where flat structures exist. Let us take the example of auto manufacturer Tata Motors. The company has a revenue of $ 42 billion and is present in 175 countries, with an employee strength of almost 80,000. Tata Motors recently announced that they have taken up the task of moving to a flatter structure. They plan to shrink their present white collar workforce from fourteen layers to five layers by April 2018. Cutting down the time taken to respond to market dynamics is one of the key drivers of this move.2

Organizations like Cipla, Vedanta, and Dr Reddy’s have also moved to flatter structures in recent times. More famous examples include those of Google, Flipkart, Zappos, and General Electric.

benefits of a flat organization structure

Building a flat organization structure allows a company to be agile, and foster an open culture with room for innovation and a high level of accountability. Taking away the multiple layers means there is no passing the buck. There are fewer hand-offs and a higher level of ownership at all levels, which lead to faster decision-making and response to external factors such as market needs and economic slowdowns.

accountability and ownership

In a flat organization, the chain of command is short and typically the span of the managers (the number of people reporting to one manager) is larger. This means that information flows much more quickly across the various levels. With larger spans, managers need to but empower employees to take decisions and take ownership of their areas of work. This leads to a sense of accountability and ownership among employees

box-01developing leadership skills

With a lot of the ownership and decision-making resting with the employees, employees even at the lowest rung tend to develop leadership skills. They are able to relate what they do to the ultimate success of the organization. With this sense of ownership and autonomy, employees are more likely to take change, solve problems, and share new ideas.

box-02faster communication

With fewer layers, communication among employees is faster and more accurate. Since flat organizations are also leaner, communication flows more quickly instead of trickling down the various layers as in a hierarchical structure; also, it is more accurate and reliable. Fewer layers also mean fewer approvals. Today’s business environment requires organizations to have mobility and agility; in a flat structure, the ability to change course and adapt quickly becomes easier and gives companies a competitive edge.

fostering innovation

Having a say or knowing how they contribute to the success of the organization make employees feel more empowered and open to sharing new ideas. Since communication is faster and there are fewer layers to move between, innovation is also encouraged and new ideas are embraced more quickly and openly.

a direct benefit of cost-effectiveness

As there are fewer layers in a flat organization, there is a need for fewer managers or supervisors. This means lower salaries and benefits allowing for cost reduction and better pay across levels.

challenges and pitfalls

With a large span of control, managers may lose track of their employees without the right systems in place. Managers must also make time to pay attention to all their team members, handle grievances in a timely manner, and hold regular feedback sessions to ensure healthy and personalized interactions.

A flat structure also creates ambiguity and confusion—individuals may not be clear about their own as well as other employees’ roles. Power centers may emerge based on individual personalities or cliques within teams. These can go undetected and cause harm to the organization.

Managing the aspirations of employees can be another big challenge. With fewer titles, there are fewer opportunities to promote employees. Apart from salary hikes, good employees would also have career aspirations and may look outside for their next role if they believe their efforts should be rewarded with a move up the ladder. Hence to retain top talent, it is important that a flat organization is able to offer value to employees by giving them greater responsibilities and bigger roles.

There are many merits and de-merits in a flat structure. It is important for leaders to take the decision on how they would structure their organization based on their business objectives, market dynamics, and inherent strengths.

References

01 http://theconversation.com/the-appeal-of-the-flat-organisation-why-some-firms-are-getting-rid-of-middle-managers-88942

02 https://economictimes.indiatimes.com/news/company/corporate-trends/biggest-restructuring-tata-motors-shrinking-structure-of-its-white-collar-workforce/articleshow/56723362.cms)

Forbes India

theatlantic.com

The Economic Times