Hierarchy Is Overrated

by Tim Kastelle  

Maybe you’ve heard the old cliché – if you’ve got “too many chiefs,” your initiative will fail. Every time I hear it, I wonder, “Why can’t everyone be a chief?”

For instance, the Second Chance Programme is a group that raises money to help reduce homelessness among women here in Southeast Queensland.  It’s achieved impressive results since being founded in 2001, and is run by a committee of about ten people. In the early days, a management consultant used the familiar chiefs/Indians line to predict they’d fail.

This kind of thinking assumes:

• You need a hierarchy to succeed.
• The people that do the work are of lower status than those that decide what work to do.
• Organizations that don’t follow the norms are likely to fail.

I think that all of these ideas are wrong.  Second Chance has certainly been very successful with their flat, non-hierarchical structure.  They have achieved a great deal, while keeping their overhead close to $0.  If the structure of the management committee was a problem, they would have failed by now.

But maybe this kind of structure only works for not-for-profits?

Nope.  About 20% of the world’s websites are now on the WordPress platform – making it one of the most important internet companies.  And yet, Automattic, the firm behind WordPress, only employs a couple hundred people, who all work remotely, with a highly autonomous flat management structure.  GitHub is another highly successful firm with a similar structure.

So, maybe this structure only works for not-for-profits and software firms with open source platforms?

Well, Valve is a gaming company that makes Half Life, Portal and many other popular games.  Their software is proprietary.  And they are famous for not having bosses at all.  And 37Signals has a structure that looks a lot like Automattic’s, while building software that enables distributed collaboration, such as Basecamp and Ruby on Rails.

Ok, then, flat structures work for not-for-profits and software startups. But you surely can’t run, say, a big manufacturing firm like this, can you?

Actually, you can.  Take a look at W.L. Gore.  Gore is one of the most successful firms in the world.  They have more than 10,000 employees, with basically three levels in their organizational hierarchy.  There is the CEO (elected democratically), a handful of functional heads, and everyone else.  All decision-making is done through self-managing teams of 8-12 people: hiring, pay, which projects to work on, everything.  Rather than relying on a command-and-control structure, current CEO Terri Kelly says:

“It’s far better to rely upon a broad base of individuals and leaders who share a common set of values and feel personal ownership for the overall success of the organization. These responsible and empowered individuals will serve as much better watchdogs than any single, dominant leader or bureaucratic structure.”

They’ve had challenges in maintaining their structure as they’ve grown, but the remain one of the most innovative and most profitable firms in the world.

But all of these examples have had flat structures from the day they were founded – you couldn’t do something like this in a firm that has been operating for a while with the normal hierarchical structure, could you?

That’s exactly what Ricardo Semler and his team at Semco did when he joined the firm in 1983.  In the 30 years since, the Brazilian conglomerate has continually worked at distributing decision-making authority out to everyone.  One of the firm’s key performance indicators is how long Semler can go between making decisions.  The time keeps getting longer, while the firm has maintained around 20% growth for nearly 30 years now.

All of these are examples where everyone is a chief.  The flat organizational structure can work anywhere.  This works best when:

• The environment is changing rapidly.  Firms organized around small, autonomous teams are much more nimble than large hierarchies.  This makes it easier to respond to change.
• Your main point of differentiation is innovation.  Firms organized with a flat structure tend to be much more innovative – if this is important strategically, then you should be flat.
• The organization has a shared purpose.  This is what has carried Second Chance through their tough times – their shared commitment to the women they are helping.  While the objectives may differ, all of the firms discussed here have a strong central purpose as well.

There is a growing body of evidence that shows that organizations with flat structures outperform those with more traditional hierarchies in most situations (see the work of Gary Hamel for a good summary of these results).  But while we are seeing an increasing number of firms using flat structures, they are still relatively rare.  Why is this so?

It’s not because people haven’t heard of the idea.  There have been more than 200 case studies of Gore and Semco alone, and I would bet that nearly every MBA program in the world includes at least one case study looking at a firm with this kind of structure.  But there are other obstacles:

• Many people don’t believe in democracy in the workplace.  Even people who adamantly oppose small amounts of central planning in government are perfectly happy to have the strategy of even very large firms set by just a handful of people.
• Even if you do believe in democracy, it can be hard to imagine work without hierarchy.  The “normal” structure is so deeply ingrained, and so widespread, that it can challenging to even think of an alternative in the first place.  That’s why these case studies are so important.
• Fear of the unusual.  John Maynard Keynes said, “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”  Unfortunately, this is still largely true today.
• It’s hard to change organizational structures.  Despite the positive example of Semco, in reality it is very hard to change organizational structures.  Even with Semco, it took a financial crisis to trigger the change in thinking.  It takes a strong belief in democracy in the workplace along with a resistance to criticism to stay the course and execute such a change.

However, as digital technologies make it easier to work in a distributed manner, and we enter the social era, flat structures will become increasingly common.  There are sound business reasons for treating people with dignity, for providing autonomy, and for organizing among small teams rather than large hierarchies.

It’s time to start reimagining management.  Making everyone a chief is a good place to start.

Tim Kastelle

Tim Kastelle researches, teaches, blogs and consults on innovation at The University of Queensland Business School.