A circular organizational structure is a form of hierarchical structure where senior-level employees occupy the inner rings of a circle and lower-level employees the outer rings. Unlike a traditional hierarchical structure where directives are sent down a linear chain of command, leaders in a circular structure are not considered to sit at the top of the organization.
Elements
Description
Example
Circular Hierarchy
Involves a flat, circular hierarchy with no clear top-down command structure, fostering collaboration and decentralized decision-making.
Zappos, an online shoe and clothing retailer, embraced a circular structure known as a “holacracy” to promote employee autonomy and self-management.
Distributed Decision-Making
Decision-making authority is distributed across the organization, allowing employees at all levels to make decisions related to their roles.
Spotify, a music streaming service, practices distributed decision-making, where cross-functional teams have autonomy to make decisions without top-down approval.
Fluid Roles
Employees have flexible roles, and they can take on different responsibilities based on their skills and interests, leading to a dynamic work environment.
Google, within its “20% time” policy, allows employees to spend a portion of their workweek on projects of their choice, encouraging fluid roles and innovation.
Collaborative Culture
Promotes a collaborative and transparent culture where open communication and idea-sharing are encouraged, often using digital tools and platforms.
GitHub, a web-based platform for software developers, fosters a collaborative culture by allowing developers worldwide to collaborate on open-source projects.
Adaptive and Agile
Emphasizes adaptability and agility to respond quickly to changing market conditions, customer needs, and emerging opportunities.
Netflix, a streaming service, utilizes a circular structure to enable cross-functional teams to adapt and pivot quickly to changing user demands.
Decentralized Leadership
Leadership roles are decentralized, and there’s no single CEO or top leader; instead, leadership emerges based on expertise and contributions.
Valve Corporation, a video game developer, employs a flat structure with no designated leaders; employees select projects to work on based on their interests.
Feedback-Driven
Regular feedback loops and mechanisms for employee input are integrated to drive continuous improvement and innovation.
Atlassian, a software company, incorporates feedback-driven practices and encourages employees to share ideas through various channels.
Transparency and Information Sharing
Promotes transparency through open access to information and sharing of company data with all employees, fostering trust and alignment.
Buffer practices radical transparency, sharing company financials, salaries, and strategic decisions with its entire workforce.
Customer-Centric
Focuses on delivering value to customers through empowered and customer-facing teams, aligning the organization’s efforts with customer needs.
Amazon, a global e-commerce and tech giant, empowers customer-centric teams to drive innovation and improve the customer experience.
Employee Empowerment
Empowers employees to take ownership of their work and contribute to the organization’s success, resulting in a sense of ownership and responsibility.
Wikipedia, a collaborative online encyclopedia, relies on a circular structure where volunteers worldwide contribute and take ownership of content creation and editing.
Instead, they radiate their vision outward from the center of the circle in all directions to every level of management.
Since the circular organizational structure is rather similar in functionality to a traditional hierarchy, the main difference lies in the psychological effect that the former has on the company.
Instead of an authoritarian leaders who shout orders from the top of a pyramid, the circular structure with each level clustered around the leader fosters a sense of inclusivity, collaboration, creativity, and accessibility.
To that end, the circular structure strives to promote the free flow of information between the various parts of the company.
It does not consider different departments or divisions to be semi-autonomous entities, instead seeing them as part of the same whole.
How the circular structure is embodied in practice
Creating a diagram of a circular organizational structure is the easy part. Embodying the style is more difficult, so here are a few best practices:
Develop onboarding, training, and development programs
New employees should be onboarded with a program that outlines the organization’s values and vision so that the purpose behind their role can be understood.
Training and development should also be available throughout the company without being restricted to particular departments or those with a certain skill set or number of years of service.
To create a culture of collaboration and continuous improvement, employee education should be offered regularly from internal and external sources.
Hire based on skills
The circular structure considers that employees should be recruited for their emotional intelligence and soft skills such as attitude, communication, and teamwork.
These individuals make superb leaders of collaborative, self-managing teams and if required, training can be provided to address a lack of any technical skills.
Establish an open-door policy
Open-door policies promote the free flow of information around the organization and enable employees to go directly to the source for clarification.
To support this critical component of a circular organizational structure, enterprise social network software such as Salesforce Chatter, Zoho Cliq, or Google Workspace can be used.
These platforms allow teams to assemble in one place and make communication, collaboration, and connection easier and more personalized.
It is important that businesses do not restrict these platforms to work-related content only. Granted, certain rules should be in place to ensure conversations remain appropriate and productive.
But since the circular structure also considers camaraderie to be important, why not create a channel where employees can chew the fat and discuss fun or interesting topics?
Case Studies
Semco Partners: Semco, a Brazilian company, is known for its unique organizational structure. The company’s founder, Ricardo Semler, introduced a circular structure where employees have significant autonomy and decision-making power. Workers are encouraged to form their own teams and define their roles. This fosters collaboration, and the company has thrived on innovation.
Morning Star: Morning Star, a California-based tomato processing company, operates with a circular structure. They have adopted a “Colleague Principles” system, where each employee is considered a colleague and is responsible for managing their own tasks and interactions. This self-management approach has resulted in high employee engagement and efficiency.
Buurtzorg: A Dutch healthcare organization, Buurtzorg, has implemented a circular structure in the healthcare sector. Nurses are organized into small, self-managed teams responsible for their patients. This approach has reduced bureaucracy and administrative overhead, allowing nurses to focus on patient care.
Valve Corporation: Valve, a prominent video game developer, employs a flat and circular organizational structure. There are no formal hierarchies or managers. Instead, employees choose their projects and work in self-organized teams. This structure promotes innovation and creativity in game development.
W. L. Gore & Associates: Known for products like Gore-Tex, this company utilizes a lattice organizational structure. There are no traditional bosses or supervisors. Instead, employees collaborate and lead by influence. This approach encourages open communication and idea-sharing across the organization.
Bridgewater Associates: A hedge fund management firm, Bridgewater, operates with a circular structure that promotes radical transparency. Employees are encouraged to provide feedback and challenge decisions. This approach allows the company to make data-driven decisions and adapt quickly to changing market conditions.
Patagonia: Patagonia, an outdoor clothing and gear company, is committed to sustainability and environmental responsibility. The circular structure at Patagonia promotes a shared sense of purpose among employees, aligning with the company’s environmental mission. Employees are encouraged to take part in environmental initiatives.
Haier Group: Haier, a Chinese multinational, uses a unique organizational model called the “Rendanheyi” model. It emphasizes the creation of small self-managing teams that operate like independent micro-enterprises. This structure encourages innovation and customer-centricity.
Spotify: Spotify, the music streaming giant, employs a “Squad” model within a circular structure. Squads are small, cross-functional teams responsible for specific aspects of the product. This setup allows for agility, innovation, and quick response to user needs.
Berkshire Hathaway: Warren Buffett’s conglomerate, Berkshire Hathaway, operates with a decentralized structure. Subsidiary companies are given significant autonomy to manage their operations independently. This approach allows for flexibility and localized decision-making.
HCL Technologies: HCL, an IT services company based in India, implemented a “Value Portal” organizational structure. It involves a decentralized approach where employees have the freedom to make decisions without going through a hierarchical chain. This structure promotes innovation and rapid problem-solving.
Pixar Animation Studios: Known for its creativity and innovation in animated films, Pixar employs a collaborative and circular structure. Teams of artists, writers, and animators work closely on projects, fostering creativity and idea sharing across departments.
Valve Corporation: Valve, a video game developer, is often cited for its unique flat and circular organizational structure. There are no traditional managers or job titles. Employees select projects to work on and join self-organized teams. This approach encourages autonomy and creativity.
Morning Star: Morning Star, a tomato processing company, operates with a circular structure based on “Colleague Principles.” Employees have significant autonomy and are responsible for their roles, fostering a sense of ownership and collaboration.
Wikipedia: Wikipedia, the online encyclopedia, functions with a decentralized and collaborative structure. Editors and contributors from around the world collaborate to create and edit content. Wikipedia’s success is driven by its community-based approach and open editing system.
Eileen Fisher: The fashion company Eileen Fisher embraces a circular structure focused on sustainability. The organization encourages employees to contribute to environmental initiatives, aligning with its commitment to eco-friendly practices.
Buurtzorg: This Dutch healthcare organization operates with a circular structure in the nursing sector. Small, self-managed teams of nurses provide patient care. This approach minimizes bureaucracy and empowers nurses to make decisions about patient needs.
The Morning Star Company: Another example from the food industry, The Morning Star Company, applies self-management principles in its tomato processing operations. Employees have the authority to manage their roles and work collaboratively to achieve company goals.
Spotify: Spotify, the music streaming service, follows an agile and circular structure. Squads, tribes, and guilds are organized to encourage collaboration among cross-functional teams, resulting in rapid product development.
Haier Group: Haier, a Chinese multinational, adopts the “Rendanheyi” organizational model. It involves small, self-managing teams that operate as independent micro-enterprises. This structure promotes innovation and customer-focused decision-making.
Zappos: The online shoe and clothing retailer, Zappos, embraces a decentralized and self-management approach. Employees have the freedom to make decisions and collaborate across departments, fostering a culture of customer service excellence.
HolacracyOne: HolacracyOne is an organization that promotes the holacracy management system. Holacracy replaces traditional management hierarchies with self-organizing circles and roles. This circular structure aims to increase agility and responsiveness.
Buffer: Buffer, a social media management company, practices a transparent and decentralized structure. The company values open communication and allows employees to work remotely. This approach encourages autonomy and flexibility.
Key takeaways:
A circular organizational structure is a form of hierarchical structure where senior-level employees occupy the inner rings of a circle and lower-level employees the outer rings.
The main difference between a circular organizational structure and others lies in the psychological effect that a circle has on employee purpose, collaboration, creativity, and accessibility to senior-level staff.
To embody aspects of the circular organizational structure, the company should establish an open-door policy of communication, hire based on soft skills with less emphasis on technical prowess, and establish routine employee training and development.
Key Highlights
Circular Organizational Structure Defined:
Senior-level employees occupy the inner rings of a circular arrangement, while lower-level employees are in the outer rings.
Vision radiates outward from the center, fostering inclusivity, collaboration, creativity, and accessibility.
Psychological Effect and Collaboration:
The circular structure promotes a sense of inclusivity and collaboration, contrasting with traditional hierarchical structures.
Leaders are not positioned at the top, but their vision reaches all levels.
Flow of Information:
Emphasizes free flow of information throughout the organization.
Departments and divisions are seen as part of a unified whole, not semi-autonomous entities.
Practical Implementation:
Onboarding and Training: New employees should understand the organization’s values and vision. Training should be available to all, fostering collaboration and improvement.
Hiring for Skills: Emphasis on emotional intelligence and soft skills. Technical skills can be trained if necessary.
Open-Door Policy: Encourages direct communication. Enterprise social network platforms aid collaboration and connection.
Balancing Work and Camaraderie: Platforms can include both work-related discussions and fun topics to build camaraderie.
Collaboration and Inclusivity:
Circular structure fosters collaboration, open communication, and a sense of belonging among employees.
Continuous Learning and Development:
Regular training opportunities support growth, development, and alignment with the circular structure’s values.
Adaptive Leadership Approach:
Leadership is distributed across the organization, with vision radiating from the center, promoting accessibility and engagement.
Cultural Impact:
The circular structure’s psychological impact helps create a culture of openness, mutual respect, and collective contribution.
Example
Description
Implications
Zappos
Zappos, an online shoe and clothing retailer, adopted a circular organizational structure known as holacracy in 2013. Under holacracy, Zappos eliminated traditional management roles and hierarchies, instead organizing employees into self-governing circles focused on specific functions or projects. This approach aims to foster agility, innovation, and employee empowerment by decentralizing decision-making and promoting individual autonomy.
Circular organizational structures like holacracy promote employee autonomy and empowerment, which can lead to increased innovation, engagement, and adaptability. Copywriters may highlight Zappos’ innovative approach to organizational design as a reflection of its commitment to employee empowerment and customer-centricity, appealing to customers and prospective employees who value autonomy and creativity.
Buurtzorg
Buurtzorg, a Dutch home care organization, operates with a circular organizational structure characterized by self-managed teams of nurses. Each team is responsible for organizing and delivering care to a specific neighborhood or community. By decentralizing decision-making and empowering frontline workers, Buurtzorg aims to improve patient outcomes, reduce administrative overhead, and enhance employee satisfaction.
Circular organizational structures like those implemented by Buurtzorg can lead to more responsive and effective service delivery, as decisions are made closer to the point of care. Copywriters may emphasize Buurtzorg’s patient-centered approach and innovative organizational model to attract clients and talent who value personalized care, collaboration, and autonomy.
Valve
Valve Corporation, a video game developer and distributor, operates with a circular organizational structure known as a “flat” or “matrix” model. At Valve, employees have the freedom to choose which projects to work on and are encouraged to collaborate with colleagues across teams. This approach fosters creativity, flexibility, and a sense of ownership among employees, as they have the autonomy to pursue projects they are passionate about.
Circular organizational structures like Valve’s “flat” model prioritize employee autonomy and collaboration, which can lead to greater innovation and employee satisfaction. Copywriters may highlight Valve’s unique approach to organizational design and its emphasis on creativity and autonomy to attract talent and appeal to customers who value innovation, flexibility, and a collaborative work environment.
Morning Star
Morning Star, a California-based tomato processing company, operates with a circular organizational structure based on principles of self-management and peer accountability. Employees at Morning Star have the freedom to make decisions related to their work without traditional managerial oversight. This approach fosters a culture of trust, collaboration, and accountability, as employees are empowered to take ownership of their roles and collaborate with colleagues to achieve shared goals.
Circular organizational structures like Morning Star’s promote a culture of autonomy, accountability, and collaboration, which can lead to higher levels of employee engagement and performance. Copywriters may emphasize Morning Star’s innovative approach to organizational design and its commitment to employee empowerment to attract talent and customers who value autonomy, trust, and collaboration.
Semco
Semco, a Brazilian manufacturing and engineering company, implemented a circular organizational structure based on principles of democracy and decentralization. Under this model, employees have the freedom to set their own schedules, choose their projects, and participate in decision-making processes. Semco’s approach prioritizes trust, transparency, and employee well-being, resulting in high levels of employee satisfaction, innovation, and business success.
Circular organizational structures like Semco’s prioritize employee well-being, autonomy, and democratic decision-making, which can lead to higher levels of engagement and productivity. Copywriters may highlight Semco’s innovative approach to organizational design and its emphasis on trust and transparency to attract talent and customers who value autonomy, flexibility, and a collaborative work culture.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019. The corporate structure is organized around two entities: OpenAI, Inc., which is a single-member Delaware LLC controlled by OpenAI non-profit, And OpenAI LP, which is a capped, for-profit organization. The OpenAI LP is governed by the board of OpenAI, Inc (the foundation), which acts as a General Partner. At the same time, Limited Partners comprise employees of the LP, some of the board members, and other investors like Reid Hoffman’s charitable foundation, Khosla Ventures, and Microsoft, the leading investor in the LP.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
The Amazon organizational structure is predominantly hierarchical with elements of function-based structure and geographic divisions. While Amazon started as a lean, flat organization in its early years, it transitioned into a hierarchical organization with its jobs and functions clearly defined as it scaled.
The Coca-Cola Company has a somewhat complex matrix organizational structure with geographic divisions, product divisions, business-type units, and functional groups.
Costco has a matrix organizational structure, which can simply be defined as any structure that combines two or more different types. In this case, a predominant functional structure exists with a more secondary divisional structure.
Costco’s geographic divisions reflect its strong presence in the United States combined with its expanding global presence. There are six divisions in the country alone to reflect its standing as the source of most company revenue.
Compared to competitor Walmart, for example, Costco takes more a decentralized approach to management, decision-making, and autonomy. This allows the company’s stores and divisions to more flexibly respond to local market conditions.
Dell has a functional organizational structure with some degree of decentralization. This means functional departments share information, contribute ideas to the success of the organization and have some degree of decision-making power.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).
Goldman Sachs has a hierarchical structure with a clear chain of command and defined career advancement process. The structure is also underpinned by business-type divisions and function-based groups.
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
McKinsey & Company has a decentralized organizational structure with mostly self-managing offices, committees, and employees. There are also functional groups and geographic divisions with proprietary names.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Nestlé has a geographical divisional structure with operations segmented into five key regions. For many years, Swiss multinational food and drink company Nestlé had a complex and decentralized matrix organizational structure where its numerous brands and subsidiaries were free to operate autonomously.
Nike has a matrix organizational structure incorporating geographic divisions. Nike’s matrix structure is also present at the regional and sub-regional levels. Managerial responsibility is segmented according to business unit (apparel, footwear, and equipment) and function (human resources, finance, marketing, sales, and operations).
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Samsung has a product-type divisional organizational structure where products determine how resources and business operations are categorized. The main resources around which Samsung’s corporate structure is organized are consumer electronics, IT, and device solutions. In addition, Samsung leadership functions are organized around a few career levels grades, based on experience (assistant, professional, senior professional, and principal professional).
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Starbucks follows a matrix organizational structure with a combination of vertical and horizontal structures. It is characterized by multiple, overlapping chains of command and divisions.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
