flat-organizational-structure

Flat Organizational Structure In A Nutshell

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.

Understanding a flat organizational structure

A flat organizational structure has significantly fewer management layers than a traditional, hierarchical structure.

The structure is characterized by large teams reporting to a single manager. This scenario reduces the capacity for control over task execution and subsequent micromanagement.

In some businesses, there is a complete absence of middle management with frontline employees reporting directly to executives.

This creates a collaborative and interconnected work environment well suited to start-ups or any organization wishing to adopt a more modern management approach.

Gaming company Valve is perhaps the most extreme example of a flat organizational structure. Valve employees do not hold titles and they are not issued with directives by middle or upper management.

Instead, the company has adopted a visible, collaborative approach. Every employee can see what projects are being worked on and join the team of any project that takes their fancy.

Valve employees can also start their own projects provided they can secure funding and build a competent team.

Strengths and weaknesses of a flat organizational structure

Companies such as Valve are the exception rather than the rule. 

With that in mind, let’s take a look at the strengths and weaknesses of the flat structure to get an idea of where it may be best suited.

Strengths

Lower operating costs

When employees are given more freedom to make decisions, there is little need for mid-level management.

This saves the business a significant amount of money on wages that can be directed elsewhere.

Improved communication

In a hierarchical structure, information moves slowly up the chain as it works its way through various levels of management.

In a flatter structure, communication does not need to go through several intermediaries and becomes more efficient as a result.

The quality of communication also increases because there is less potential for facts to be distorted or misinterpreted.

Increased employee motivation and satisfaction

Autonomous employees tend to be more motivated to produce desirable results for the company.

This increases morale and productivity while also decreasing employee turnover.

Weaknesses

Unsuitable for large organizations

The flat structure is most suited to start-ups and smaller businesses with a manageable number of employees.

In larger organizations, the ratio of employees to managers can become disproportionate.

Management may be unaware of unmotivated or poorly behaving employees.

They may also lack the required support to effect important decisions.

Hinders employee retention

While some employees will be content to work under a flat structure indefinitely, others will want to climb the corporate ladder.

Given that there is little scope for promotion, aspiring employees may seek work elsewhere.

Creates power struggles

When employees do not have the overarching presence of a superior, power struggles can develop.

This creates confusion and disharmony and also causes a loss of productivity.

Flat organizational structure examples

For the remainder of this article, we’ll take a look at some companies employing the flat structure.

Buurtzorg

Buurtzorg is a Dutch healthcare organization founded in 2006 by Jos de Blok.

The company was created because de Blok felt that the ability to deliver proper healthcare was hindered by excessive bureaucracy and little employee autonomy.

Buurtzorg now employs over 15,000 nurses in 950 teams to deliver at-home care across the Netherlands with a customer-centric focus.

Each team is self-managing, with each member of the team sharing decision-making responsibility and deciding how the work is organized.

Reaktor

Reaktor is a Finnish tech company with a core focus on the design and development of digital products and services. 

Reaktor consists of autonomous teams which the company claims helps it attract the most talented individuals and provides an environment conducive to personal growth, excellence, mutual respect, and shared responsibility.

The company is comprised of 95% seniors and 5% juniors, but there is no association between seniority and competence. “Anyone can claim responsibility and leadership, provided they have the means to do it”, according to Reaktor Creative Director Hannu Oksa.

Gumroad

Gumroad is an online marketplace for self-publishers of books, memberships, courses, and other products. It was founded in 2011 by Sahil Lavingia and Sachin Khanna. 

Lavingia believes that the people who define decisions in a company are more important than the people who make the decisions.

He uses the flat organizational structure to convey the importance of a unified purpose and access to similar toolsets.

One-on-one communication via email is also discouraged in favor of public communication mediums such as Asana and HipChat.

The Morning Star Company

The Morning Star Company is an American agribusiness and food processing company that started life as a trucking firm in 1970.

The company is the largest producer of commercial tomato products and is part of an industry in California that produces around 96% of the total U.S. output or one-third of global output.

However, The Morning Star Company is better known for its flat organizational structure.

There are absolutely no managers of any kind, with employees instead reporting to each other based on a colleague letter of understanding (CLOU) that they create.

Each CLOU outlines a personal commercial mission (PCM) which details how an individual will contribute to the company via activities, KPIs, and an estimated time commitment.

Key takeaways:

  • A flat organizational structure describes any business with a lack of middle management between employees and executives. The structure is often associated with gaming company Valve, where autonomous employees without titles work on any project of their choosing. Provided they can secure the funding and manpower, they can also start their own projects.
  • A flat organizational structure lowers wage costs significantly, allowing many start-ups and smaller companies to remain viable. Larger businesses will find the flat structure unsuitable as the ratio of employees to managers becomes untenable.
  • Examples of companies with such a structure include Danish healthcare organization Buurtzorg and Finnish tech company Reaktor, where no correlation is made between seniority and competence.
  • Online marketplace Gumroad is another company that enjoys the benefits of a flat organizational structure. Tomato producer The Morning Star Company is devoid of management staff with employees accountable to each other with a personal contract that defines a personal mission, action plan, and key performance indicators.

Read Next: Organizational Structure.

Other Types of Organizational Structures

organizational-structure-types
Organizational Structures

Siloed Organizational Structures

Functional

functional-organizational-structure
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.

Divisional

divisional-organizational-structure

Open Organizational Structures

Matrix

matrix-organizational-structure

Flat

flat-organizational-structure
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.

Organizational Structure Case Studies

Airbnb Organizational Structure

airbnb-organizational-structure
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.

eBay Organizational Structure

ebay-organizational-structure
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.

IBM Organizational Structure

ibm-organizational-structure
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.

Sony Organizational Structure

sony-organizational-structure
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.

Facebook Organizational Structure

facebook-organizational-structure
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 based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

google-organizational-structure
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.

Tesla Organizational Structure

tesla-organizational-structure
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.

McDonald’s Organizational Structure

mcdonald-organizational-structure
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.

Walmart Organizational Structure

walmart-organizational-structure
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.

Microsoft Organizational Structure

microsoft-organizational-structure
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.

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