Every organization that has ever existed has followed a structure of working that has resulted in the delivery of the company’s objectives. An organizational structure is a system or hierarchy that outlines the manner in which certain activities are directed to employees in order to achieve the goals of an organization. These activities can include rules, tasks and responsibilities.
It also determines how information flows between the different levels within the company. Depending on the stage that is occupied by certain employees in the organization, streamlining tasks becomes easier, ensuring that each worker achieves his/her assigned targets. Having an organizational structure in place allows companies to remain efficient and focused.
An organizational structure defines how activities such as task allocation, coordination, and supervision are directed toward the achievement of organizational aims. It also determines which individuals get to participate in which decision-making processes, and to what extent their views shape and influence the organization's actions. The structure of an organization will determine the modes in which it operates and performs.
The structure has an impact on the individual employee at the micro level and the organization at the macro level. Structuring enhances the company’s execution of plans in a way that it can best move forward. Although having a structure in place can help with efficiency and provide clarity for everyone functioning at each level, this structure can also be taken advantage of.
"It is when spoken of in a negative context that ‘Organizational Structure’ becomes ‘Hierarchy’."
Hierarchy is an arrangement of items wherein the objects represented are either "above", "below", or "at the same level as" one another. In an organizational setup, hierarchy comes into the picture where individuals occupy each strata of the structure. It is usually illustrated in a pyramid-like diagram, where the most powerful members of the organization sit at the top, while those with the least amount of power are at the bottom. This is the traditional structure that has been guiding most companies of the world. Members of hierarchical organizational structures communicate and collaborate with their immediate superiors and with their immediate subordinates.
Categorizing companies in broader terms, there exists a centralized and decentralized structure. The former is a top-down approach where decisions flow from the defined chain of command who is in power. Most multinational conglomerates follow a fixed centralized working procedure, with a clear tag for employee designations e.g. CEO, Manager, Intern. The latter, on the other hand is where the decision-making power is evenly distributed among various levels of the organization. This mode leans towards a bottom-up approach. Startups centered on technology are the first to incorporate a decentralized work structure, which allows them to remain fast, agile, and adaptable, with almost every employee receiving a high level of personal agency.
Delving into types of business structures on a deeper level, one can categorize it into four subtypes. The first is the Functional Structure, which operates on bureaucratic organizational principles. Here, individuals are hierarchies based on their functions or roles. Small and medium sized businesses follow this operating method. Then comes the Divisional or Multidivisional Structure, wherein employees are divided on the basis of divisions or units within the company that they belong to. Large corporates often have this structure. Third in line is the Flatarchy Structure, which is mostly adopted by startups. As the name suggests, it flattens the hierarchy and gives its employees a lot of autonomy. Lastly, the Matrix Structure is the most confusing and the least used. This structure matrixes employees across different divisions or departments. For example, an employee working for a matrixed company may have duties in both sales and customer service. However, in common parlance, an organizational structure is classified into flat and hierarchized.
The death of hierarchy -Giving rise to a new organizational structure
In a flat organizational structure, leadership is decentralized such that there is no one person at the top.
"If a hierarchical organization could be represented as a mountain, a flat organizational structure is a flat plateau.”
Such a structure could also result in an absence of job titles. It is most likely that laissez-faire and democratic leaders would thrive in a flat corporate environment.
Advantages of a flat organization structure include:
1. Communication flows a lot easier and quicker between individuals.
2. Employees are encouraged to participate in the decision-making process.
3. Lack of bureaucratic procedures in its functioning.
4. Increases creativity and innovation within the company
5. Higher productivity since employees no longer need to wade through the various levels of leadership.
6. Employees are constantly motivated and engaged since they feel their opinions matter
7. High level of employee autonomy
8. Elevates the employees' level of responsibility.
9. Removes excess layers of management, which also reduces the organization's budget costs.
10. Scope for greater customer intimacy.
Drawbacks of a flat organization structure include:
1. There might be difficulty in transitioning to this style since leaders would have to eliminate layers of leadership.
2. A lack of role clarity can slow productivity and negatively impact performance of employees.
3. Should the organizations become too large, flat structures can become challenging to manage.
4. If the organization wants to go public, then a board of directors is required which adds another layer of decision-making.
5. Promotions are non-existent since that would once again result in hierarchies.
6. It would require employees to be self-motivated, comfortable with a lack of direction, and ready to accept a lack of opportunities for immediate promotion.
7. Confusion in employees due to an absence of a boss to report to.
8. Production of a lot of generalists but no specialists. Specifics of jobs for employees may be unclear.
On the other hand, a hierarchized organizational structure can be looked at from two angles. The external structure and its internal composition. The outer structure exists so that everyone knows their place in the functioning of the organization and the inner look within the structure showcases the one-sided communication flowing from the top of the organization.
The positives of this organizational model include:
1. Employees recognize defined levels of leadership within the organization.
2. Serves a great purpose in helping every employee see where they fit in the big picture of things
3. Opportunities for promotion exist.
4. Employees stay motivated and ambitious to reach the upper rungs of the organizational ladder.
5. Developing employees as specialists occurs with narrowing their field of focus such that they become experts in specific functions.
6. Employees become loyal to their departments and look out for the best interest of their area.
7. Employers have clarity on who performs which roles.
Despite these, the downsides of this system include -
1. Communication across different departments becomes less effective.
2. Rivalry between departments may inflame with each department making decisions that benefit its own interests rather than the organizations’ as a whole.
3. Increased bureaucracy hinders the company’s speed to change.
4. Increased time may be required to respond to clients.
5. Salaries for multiple layers of management increase company’s costs.
6. Mandates come from the top, which results in no challenging them from the employees at the bottom.
7. Lack of grass-root level interactions stifle employee experience and leave workers with a lack of power and control over their situations.
However, it needs to be recognized that the future of work is moving towards flatter organizational structures where employees feel valued and have the tools they need to reach their potential unlike a stagnant hierarchy where employees can't express their concerns up the pyramid, making their voices unheard. In order to overcome the disadvantages of the flatter organizational structures, companies can follow the following three procedures:
Overcoming disadvantages of flat organization structures:
1. Build Trust
The fact of trusting someone is the key to every successful relationship. Trusting employees to do the job that is assigned to them to the best of their potential would result in better results for the organization as a whole. This would also enable better communication and collaboration between individuals, thus making the absence of hierarchies the norm.
2. Expand borders
Giving employees the flexibility to work on a plethora of tasks, irrespective of their duration in the company would not just remove the monotony of work that would erupt with doing one specific job but would also equip each employee with skills necessary for a variety of functions. Hence, in the absence of one employee, others can definitely uptake the role, which in turn doesn’t let the organization suffer should one employee stop working.
3. Give ownership
Flat organizations can increase employee engagement and voluntary extra participation by making them accountable for certain roles that need to be performed. Giving individual employees the ownership to complete certain tasks would not just boost their confidence but will also propel them to pursue a wide range of other functions.
The flat structure that is being widely adopted is close to the concept of self-management teams. In this mode of functioning, a group of workers are assigned to perform a specific job for a company. Instead of loosely connected workers performing separate tasks, a self-management team performs a defined set of interrelated tasks and has the autonomy to make most critical decisions about the work. Companies use self-management teams to improve productivity, quality and cost-management.
A self-directed team requires limited supervision and defines its own goals. While the self-management team is independent, the team members are interdependent. A self-managed team is a group of employees that's responsible and accountable for all or most aspects of producing a product or delivering a service. Management and technical responsibilities are typically rotated among the team members.
Flattening hierarchies have tremendous effects on employee performance in organizations. Analysis of already conducted research in this area reveals that the decision to push down decision making to the lower levels of the company presents employees with the freedom to be responsible for everything they do and also to be held accountable.
Although top management still plays a crucial role in taking the major decisions of the organization, employees confess that despite this, the authorities consult with their employees, as they want to ensure that investors get their return on investments. Moreover, in spite of the autonomy provided, many lower level employees still leave the responsibility of making decisions to their former supervisors and middle managers.
A company should broadly keep in mind the Five Ps that will determine the success of the organization. They are: Purpose, Philosophy, Priorities, Practices and Projections. Of these, organizational practices are activities that focus on developing authentic connections amongst juniors, seniors, equals and the company as a whole. There are two types of organizational practices - Internal and External, the former affecting those within the organization and the latter impacting the ones outside of the organization.
Internal practices are the inner workings of the organization dealing with effective employee interactions, accomplishments, work habits, organizational structure and systems for doing work. They affect employees. Internal Practices are synonymous with the company culture.
External Practices define how an organization interacts with outsiders, such that it determines customer relations and markets, the products and services and business partners. They impact non-employees and potential customers. It is imperative for external practices to also align with the organizations’ culture.
Ten organizational practices that can be adopted by companies to enhance work experience alongside making the organization successful include:
1. Engaging workers
2. Rewarding efforts
3. Being vulnerable
4. Staying constantly committed
6. Creating cultural cohesiveness
7. Focusing on team effort
8. Holding regular meetings
9. Regularly assessing the company’s culture
10. Communicating freely with others
In most startups that boast a flattened structure of hierarchy, the concept of employee self-management rules. Self-management means that a manager sets the overall direction of a project or task, and employees implement the details. Except for the manager’s involvement for project updates, issues and resource requests, employees take complete onus on themselves and complete their own tasks, run their own projects, and try to solve their own problems.
The Open-Door Policy is a given in self-managed workspaces. Referring to the communication policy in which
"The ones at the upper rungs of the hierarchy leave their office door "open"".
this system is instilled in organizations in order to encourage openness and transparency with the employees of the company. Complete freedom is given to employees, allowing them to stop by whenever they feel the need to, meet and ask questions, discuss suggestions, and address problems or concerns with management. Fostering an environment of collaboration, high performance, and mutual respect between upper management and employees means that
“Every manager's door is open to every employee”.
It establishes an environment of trust and mutual respect between the two and enables and empowers employees to openly speak with their employer about issues face-to-face, rather than through email.
Self-management skills are those abilities that allow an employee to feel more productive when doing daily routine tasks regardless of the working environment. Well-developed self-management skills will help in efficiently communicating with co-workers, management and customers, make right decisions, plan one’s working time, and keep one’s body healthy. Self-management skills on the part of both the employer and the employees shall ensure better productivity by both parties, ultimately benefiting the organization in achieving its goals.
The Future of Work has also sprung the concept of Open-Plan Office Spaces up. Being a floor plan that eliminates most private offices and meeting spaces, this layout ensures most day-to-day business functions operate with everyone working in the same room. This modern design facilitates innovation and creativity and puts people at ease in a collegial setting rather than when they are sitting with eyes looking down on them from a top floor office window. It not only enables faster learning for new employees since others are just one seat away but also makes the newbies more visible.
Although workers may have assigned spaces with drawers and low-level cubicle designs to offer some semblance of privacy, the open-plan office space’s primary goal is inspiring collaboration and communication resulting in personal space being kept to a minimum. Touted by many technology innovators including Facebook and Google, this work style is soon gaining popularity among startups, which function in a casual office setup boasting a variety of state-of-the-art facilities. Visit most IT startups in India and you’d be surprised to find employees diligently working at computers with headphones when needing to concentrate on a task lest other interrupters disrupt their thought processes!
In recent times, despite COVID-19 making social distancing mandatory, employees have gotten so used to open workspaces that even for their own safety, they refuse going back to earlier models of cubical functioning. Rather than investing in costly remodeling of workplaces, organizations are now trying to reconfigure existing spaces, with an eye towards keeping employees safe from infection and giving them the peace of mind needed to return. The longing has also been complemented with remote working styles that have been followed since the past four months. Employees are genuinely longing that social interaction with their colleagues, the water cooler chats and hence now more than ever, want to return to their Open-Plan workspaces.
With employees saying, ‘We don’t want to go back into a workplace where it feels like we’re in a prison’ and the employers saying, ‘We don’t want to be breathing into each others’ faces’, organizations are striving to reduce worker density within the existing open workplace setup e.g. instead of squeezing eight employees onto a bench desk, office designers are advising companies to seat just three. Hence, irrespective of the gravity of the situation, open-plan working is gaining popularity by the day and is likely to be the first glimpse of future working styles.
Jacob Morgan, the author of “The Future of Work: Attract New Talent, Build Better Leaders, and Create a Competitive Organization” gives a detailed description of hierarchical organizations, flatter & flat organizations and flatarchies & holacracies. In his opinion,
“Somewhere in between hierarchies and flat organizations lie flatarchies.”
It’s an adaptable model for organizations, which makes itself conducive to the freelancer economy. This approach may be the most adaptable, but it does require more disruption within the organization. It is also relevant to medium- and large-sized organizations that are seeking to blend both a solid and a loose structure.
“Flattening structures isn’t just about tearing up the organizational chart – it is about communicating with everyone and allowing every single member of the staff to feel like they play an integral part of the vision and mission of the company.” - Katie McCrory
In the Holacratic workspace functioning, people without job titles may have several roles. Zappos and Medium are some organizations that are following the holacratic work style. With 1500 employees, the former is the largest organization to become holacratic with no job titles, no managers and no hierarchy.
This comprehensive practice for structuring, governing, and running an organization replaces top-down, predict-and-control paradigm with a new way of achieving control by distributing power. Besides claiming to increase agility, efficiency, transparency, innovation and accountability within an organization, it is a new “operating system” that instills rapid evolution in the core processes of an organization.
“Trust is the foundation on what holacracies, flatarchies and flat organizations function.”
The global environmental movement, Extinction Rebellion has also been identified by The Economist as conducting its work in a holacratic manner.
According to Zappos's CEO Tony Hsieh,
"Holacracy makes individuals more responsible for their own thoughts and actions."
Facebook, Nike, Gumroad are other organizations that follow this mode of working.
Tyler Williams from Zappos says,
"With Holacracy, it's like lots of little entrepreneurs are being innovative within one big enterprise."
In a nutshell, the future of organizational structures is flexibility, fluidity and freedom. High-performing organizations are bound to operate as empowered networks, coordinated through culture, information systems, and talent mobility. Most companies are focused on redesigning the organization itself, by being more inclusive and integrating individuals better in the workspace.
This is evident in most workspaces that are actively studying and developing new models that are more employee-centric, guaranteeing maximum productivity. Other organizations are not only designing but also building this new organization.
As networks and ecosystems replace organizational hierarchies,
“The traditional question “For whom do you work?” has been replaced by “With whom do you work?””
It is thus imperative for employers to be on the same page with employees with the introduction of newer methods and strategies that encourages better communication. Putting an end to the hierarchy that divides the C-Suite and the workers, such ahead-of-time changes in workplaces and employee managements are being witnessed around the globe and would eventually result in evolved work styles of the future!