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.
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.
Zappos
Shoe company Zappos did away with its hierarchical structure in 2014 and replaced it with a holacracy.
Within these circles, employees could have multiple roles and since there were no managers or job titles, personal accountability and company-wide transparency increased.
Hsieh noted at one point that the flatter structure of holacracy enabled productivity to increase as Zappos expanded – indeed, the reverse is often true in companies with a hierarchical structure and many layers of management. It also made Zappos more resilient and flexible.
A holacracy is a management strategy and an organizational structure where the power to make important decisions is distributed throughout an organization. It differs from conventional management hierarchies where power is in the hands of a select few. The core principle of a holacracy is self-organization where employees organize into several teams and then work in a self-directed fashion toward a common goal.
In a Yahoo! Finance article dated January 2020, however, reports claimed the company had phased out some aspects of its flat structure.
Zappos executive John Bunch explained that holacracy had made the company too internally focused, with some managerial positions reinstated to ensure employees remained focused on the customer.
W. L. Gore & Associates, also known as WL Gore, is best known as the manufacturer of waterproof Gore-Tex fabrics.
On the company’s website, it describes a flatter organizational structure in the context of its fundamental beliefs and use of the term “Associates” to denote employees:
“We believe in the individual and each Associate’s potential to help Gore grow and succeed. We also believe in the power of small teams, and through Gore’s lattice structure, Associates can communicate freely to assemble talents and diverse perspectives to quickly make good decisions and produce quality work that helps us deliver on our promises to our customers.”
Under this lattice structure, Gore’s multi-disciplined teams are self-managing with no clearly defined communication channels and management or leadership positions.
Associates are also afforded the autonomy to grow their knowledge, skill, and scope of responsibility.
WL Gore then explains that all Associates have a vested interest in the company’s success.
This means they share in Gore’s risks and rewards and are incentivized to stay committed to the company’s long-term success.
For founder Jason Fried, Basecamp’s core focus is more on getting things done and less on what titles people possess or what they wear to work.
Unlike some of its competitors, every decision made within the company’s walls is about maintaining simplicity and a calm environment.
What’s more, small but flexible teams work on projects based on employee interests for a six-week period.
There is no project manager as such, with the product designer serving as team leader and also working closely with the programmers on all tasks.
Over the aforementioned six-week period, hours are not tracked and it is up to the team to decide how the work is organized.
Project updates and related communications are centralized in one tool so that any employee can view project progress.
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.
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.
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 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 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 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 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 (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 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 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 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 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.
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.
