Today, there is a wide variety of forms of organizational structures: many of them have a long history of existence, while some have appeared quite recently. In view of this, for modern business managers – architects of the organizational structure – the problem of choosing the optimal organizational structure for the enterprise arises. There is no unified correct, most ideal type of organizational structure suitable for all organizations. First of all, for modern organizations, adaptability to changing environmental factors and the choice of the optimal organizational structure, taking into account the specifics of activities, are important. Modern types of organizational structures provide huge opportunities for achieving goals at different levels. However, in general, the tendency in the development of organizational structures is reduced to the prevalence of a set of highly organized teams based on the principle of horizontal management, as opposed to the hierarchy of mechanistic organizational structures. The structures of an organic type, adaptive, flexible are the most in demand in changing conditions of the external environment. The most recent and at the same time controversial organizational structure is a flat structure.
Flat Organizational Structures: Theoretical Grounds
In frames of Modern Organizational Structure Theory, with its inherent systems approach, considering the organization as a system comprised of a range of inter-related and inter-dependent sub-systems, a flat organizational structure can be considered a complex dynamic system. A flat organization (also known as a horizontal organization) has an organizational structure with few or no levels of middle management between staff and managers. A flat organizational structure implies the minimization of levels in the management hierarchy. According to some researchers, the main advantage of the flat structure lies in its ability to react quickly and adapt to changes in the external environment, innovation and the accumulation of unique competencies (Meyer, 2017). The higher the uncertainty of the tasks to be solved, the more flat the organizational structure should be, since the specialization inherent in multi-level structures presupposes the certainty of tasks. In a flat structure, it is easier to establish the horizontal connections necessary to achieve such coordination, when the execution of a vaguely defined task requires the combination of individual efforts in the process of its implementation.
Flat organizational structures are becoming increasingly popular in world-class companies. The ideal environment for its application is an organization, where everyone has own opinion and can act autonomously. For example, Elon Musk, CEO and developer of Tesla, outlines the principles of communication policy within his company: any Tesla employee can and should express all his thoughts about the best ways to solve the problems facing company (Janse, 2020). A flat organizational structure of company management implies that decisions are made by people with relevant information and authority – this reduces the hierarchical burden.
Although flat structures contribute to a more informal relationship between managers and subordinates, centralization of the top of this structure is still possible. Evidently, some organizations do not have a pyramidal or flat structure, but a diamond-shaped one – with a small number of workers in production, overseeing automatic installations, and the bulk of employees at the middle level. Porter and Lawler found that in companies with up to 5,000 employees, working in a flat structure is more satisfying for managers (as cited in Meyer, 2017). However, for organizations with more than 5 thousand employees, flat structure can become an obstacle for efficiency.
In general, ‘high’ structures ensured more security and satisfaction of social needs, while flat structures were associated with great opportunities for self-actualization. Porter and Lawler, analyzing the evidence for flat organizational structures, conclude that the benefits of such structures not only diminish as the size of the organization increases, but in relatively large organizations, flat structure can sometimes be a hindrance (as cited in Meyer, 2017). They argue that it might not make sense to apply a tiered structure in a small organization, since the coordination and control issues are not so complex here. On the other hand, in a large organization, a tiered structure is necessary to achieve effective coordination and control. The introduction of a flat organizational management structure can also lead to a decrease in the level of personal responsibility and discipline, since there is more than one leader for each employee. If communication between employees and management is not well established, this can create undue stress on managers.
However, the problem of reduced manageability in flat organizational structures can be solved by integrating an appropriate leadership style. A flat organizational structure is not a type of structure as such, but rather a feature of any organizational structure, which consists in an extended range of management functions. A linear organizational structure, as well as divisional, matrix, or network one, can be “flat.”
For the effective functioning of a flat structure, it is impossible to just reduce the number of middle managers and artificially expand the scope of their management, as this will lead to complete disruption of the enterprise’ functioning. It is necessary to start with motivating the team for adoption of the purpose of the company, with creating the formal foundations of effective activity, the formation of the required organizational culture. Flat organizational structures are directly related to adhocracy – flexible, adaptive, organic version of the organization. It is characterized by a lack of hierarchy, a formal organizational structure and bureaucratic prerequisites for building work processes. Employee behavior in these structures is based on spontaneity and creativity.
Toffler, devoting his work the concept of adhocracy, first attracted widespread attention to this concept and described the term. In a postindustrial society, bureaucracy will gradually be replaced by an adhocracy that coordinates the work of many temporary working groups which arise and cease in accordance with the pace of changes in the surrounding environment (Hamel, 2020, p. 73). The following properties of adhocracy can be distinguished, essential ones from the point of view of Toffler (Janse, 2020):
- This structure is temporary;
- This structure is flexible, rapidly changing;
- The scope of work is broken down into parts to be carried out by different working groups;
- The main task of the person managing the adhocracy is to coordinate the activities of the working groups;
- Works are not standardized, and require a creative approach to their implementation;
- All employees must be able to make independent decisions.
Power in adhocracy is built on the ‘authority’ of knowledge. It is significant that Toffler views adhocracy as an emerging future norm. From Toffler’s point of view, qualitative changes are taking place in the world regarding the value orientations of humanity, social norms and, accordingly, social institutions that support public life (as cited in Janse, 2020). Adhocracy, in his opinion, will replace organizations with a rigid division of labor, tough regulation of activities, and replace the deindividualization of employees, their isolation from the value significance of the problems solved by the organization.
Interest in the organizational structure, which contradicts both social stereotypes associated with the relationship between the individual and the organization, and the classical principles of management, arose both in the circles of sociologists dealing with the problems of post-industrial society and in the circles of specialists in the field of management. One of the most authoritative work on adhocracy is the study of Mintzberg, where for the first time the definition of adhocracy from the point of view of a specialist in organizational structures was introduced. Adhocracy is defined as a highly organic structure with little formalization of behavior. Mintzberg defines adhocracy by listing all its inherent features. First of all, he singles out among them the mutual coordination of actions as the main coordinating mechanism, considering this characteristic of adhocracy to be the most significant (as cited in Meyer, 2017). The development of the paradigm of adhocracy “in depth” is the concept of holacracy, with a more even distribution of responsibility and leadership in the form of circles, each of which includes employees working on the same project in a variety of roles. Authority and responsibility for decision making is distributed throughout the holarchy of self-organizing teams.
Technology companies are constantly innovating not only for their products, but also for their internal processes. That is why Zappos, Medium, GitHub, and others have become adepts of holacracy – management without hierarchies and managers. At the same time, Zappos example shows some ambiguity and contradictoriness of holacracy, and the need for an extremely balanced approach in its implementation and development.
Practical Application: The Case of Zappos
As it was mentioned above, a flat organizational structure provides flexibility and agility. A growing body of evidence suggests that organizations with flat organizational structures perform better than traditional hierarchies (Meyer, 2017). In fact, trying to move to a flat organizational structure of management is a kind of test for the flexibility of the company.
In this case, it is about the ability to quickly change strategy, structure, processes, people, and technology in order to increase efficiency, which can be seen in the example of Zappos. At the end of 2013, the largest online shoe retailer in the world, a company with a turnover of almost $ 2.5 billion, announced the transition to holacracy as the main principle of company management (Denning, 2015). One and a half thousand of its employees began to work in conditions of anarchy and lack of management hierarchy: it was replaced by a flexible system equal self-governing “circles.” The main principle of the founder of the company, Tony Shay, is to take care of employees and fight unnecessary corporate bureaucracy. Thus, some experts believe that it has enabled him to transform his online store into dynamic multi-billion-dollar business (Denning, 2015). A company created in Zappos is an organizational structure that is constantly evolving and does not have permanent business units in the form of departments or divisions. The basic element of the structure is the so-called circle that unites employees to perform a task: projects, sales, operations, finance, accounting, marketing.
Holacracy does not prohibit positions as such, but it emphasizes the fact that the role of each employee in the process of activity – even within one working day – can vary depending on tasks and projects. This means that it is unreasonable to assign the employee a certain formal label indicating his/her status in the organization, or ascribe to some department or department. One employee can be a member of several circles, because they overlap and can be “nested” in larger circles. The largest one is the “general circle of the company,” consisting of employees of all major roles. Operational meetings were envisaged at Zappos, at which circle members share information and resolve so-called friction – the gaps between how a process in the company actually works and how it should ideally work. Each participant in the circle could declare certain frictions at any time and propose a way to overcome them. At the same time, holacracy stimulates the rapid resolution of each specific problem related to a specific role, without involving other circles and roles, at the micro level.
On the one hand, in holacracy, the objects of management are not people, but roles – each of which can be played by any employee. Each role has a clear purpose and area of responsibility, and each employee can take on several roles at once. On the other hand, holacracy makes a clear distinction between organizational meetings, where dynamic structure is discussed, and operational meetings, where business problems are solved. The company creates a kind of platform for the work of employees and the circles they belong to; after that, each circle solves its own local problems, using a platform common for the entire company, as described in the corporate “constitution” (Robertson, 2016). Zappos has also completely changed the model of finding candidates for vacancies – without recruiting agencies and posting ads on relevant sites. Job seekers were asked to join a corporate social network called Zappos Insiders, where they can communicate with existing employees, “try on” their competencies to the level of tasks and prove their willingness to work. Thus, the company tried to solve two problems at once – first, to speed up the search process, and secondly, to create a pool of active candidates. However, even with such a rigorous selection process, Shay got a company with a large proportion of people not entirely attached to the ideas of his cultural revolution.
However, all people are different, and complete equality may not be the best option for everyone. As a result, holacracy can become a successful structure for no more than half of the employees, since human nature can be much stronger than any imposed structure. As a result, some employees will inevitably rally around the informal leader, while others will feel insecure. Zappos had to face these challenges, thus showing the need for careful and balanced approach to introducing of holacracy. Although most employees liked the new system – people said the new roles were shaped “to maximize the ability of everyone” and allowed “everyone to influence the management of the organization” – those who quit tended to consider this change destructive for the company (Denning, 2015). For the sake of Zappos (and their own careers), they agreed to play by the new rules, but they felt uncomfortable. Almost 20% of employees left the company, and a third of the them were people employed on a vital project left the company. This included almost half of the group working on the transition of Zappos to the Amazon cloud, and as a result, the integration of Zappos into the parent company had to be postponed for almost a year.
Usually, when a company undergoes such a downsizing, including when key employees leave, management takes a step back to reassess the strategy. However, no conclusions have yet been made about whether it was worth switching to holacratic management. Shay admitted that Zappos was not quite ready for innovations, but immediately noticed that the process of change in management began a year and a half ago, so for most managers this was hardly news (Mont, 2017). Thus, management simply chose to close their eyes to the problem, rather than looking for compromise options. The introduction of holacracy was not entirely successful for Zappos. However, the problem was not caused by holacracy itself, but by the haste and impulsiveness of the company founder and senior managers.
Obviously, any modern innovative organization requires a more modern structure and a different model of employee behavior. New thoughts, motivations and actions of employees, their initiative without an appropriate structure will not be properly channeled to achieve a result. However, at the same time, the new structure with old thoughts and staff motivations will also not be able to function productively. The new model of team behavior will become a decisive factor for gaining structural flexibility, decentralizing the decision-making process and achieving an innovative nature of activities.
The innovative nature of activities presupposes structural flexibility and decentralization of the decision-making process. However, the very process of creating such a structure already at the start requires the company to manifest unusual qualities for itself, such as flexibility and decentralization, otherwise the process of its implementation will not be carried out properly. A paradox arises, because introducing a structure for innovation, the company counts on the emergence of decentralization. At the same time, for the implementation of such a structure, decentralization is required at least at the level of its general understanding and acceptance. To overcome this contradiction, it is necessary to first influence the staff of the company in order to change the mentality of the team. The expectation is that in response to such organizational changes, employees will have new attitudes, views on the development of the company, which will allow them to organically integrate into the decentralized structure.
Denning, S. (2015). Is holacracy succeeding at Zappos? Forbes. Web.
Hamel, G. (2020). Humanocracy: Creating organizations as amazing as the people inside them. Harvard Business Review Press.
Janse, D. (2020). Getting started with holacracy: Upgrading your team’s productivity. Diederick Janse & Marco Bogers.
Meyer, N. (2017). Principle-based organizational structure: A handbook to help you engineer entrepreneurial thinking and teamwork into organizations of any size. NDMA Publishing.
Mont, S. (2017). Autopsy of a failed holacracy: Lessons in justice, equity, and self-management. Nonprofit Quarterly. Web.
Robertson, B. J. (2016). Holacracy. Penguin.