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. 

5 Things Never Heard at the Most Innovative Companies

Kathy Gersch explains that while it may be difficult for your company to generate innovative ideas, high-tech start-ups and other companies we consider to have innovation built into their DNA have just as much difficulty maintaining their innovative edge.

The most interesting thing about the Fast Company Most Innovative Companies 2013 list isn’t who is on it. It’s who isn’t.

Writing about the companies who had fallen off the list (and were obviously upset about it), Robert Safian, Editor of Fast Company magazine said, “It’s not that these businesses suddenly lost their mojo. But in a climate where the velocity of change is accelerating, these companies didn’t have a compelling-enough breakthrough for us to highlight.”

Safian’s remark perfectly illustrates the essential element required for survival in today’s economic environment. If you aren’t constantly innovating, your organization is most likely losing its edge. If your innovations are incremental – not big enough to move the needle – you’re still losing.

What do the companies on Fast Company’s list like Nike, Uber, and Pinterest have that others like Facebook and Twitter don’t? Better new products – which came from innovative ideas, that’s obvious. The mystery is where these ideas come from, how they rise to get noticed, and then how they are brought to market faster than anyone else. This list is a reminder that some of the companies we’ve historically associated with innovation because of their brand name (3M, Facebook, and Twitter) aren’t immune to losing their edge.

While people have spilled much ink on how to create innovation, I’d like to offer an easier way to get there – by process of elimination. Let’s start with five things you will NOT hear at the most innovative organizations. Be on alert for them; These are clear indicators that your company is losing its innovation “mojo.”

1. “Can we do that?” Permission seekers are the mark of unclear company vision. If your company’s vision is clear enough, and has been communicated constantly and consistently, people do not come to you for permission, they come to show you what they’ve already done.
2. “We can’t do that.” On the flip side of the previous comment, you find the limitations or barriers people have set up in reaction to the punishment they’ve experienced for prior failures. If your people see others try, fail, then get punished, you can guarantee that people will remain in the safe spot. No one is going to try to innovate, much less try anything remotely outside the box ever again.
3. “We have to go through proper channels.” A mark of truly innovative companies is that the employees are well-networked, and they are constantly crossing silo walls to engage other departments, gather knowledge, or just get an outside opinion. Though one person may come up with the idea, nobody creates a great innovation solely on their own.
4. “That’s good enough.” In many companies, once significant progress is made, momentum slows and eventually the project fails. This is one of the key reasons 70% of change efforts fail. Yes, it’s important to celebrate incremental wins, but in innovative companies, people don’t let up – they continue to focus on the final prize. This only comes from a relentless focus on winning.
5. “That’s not my job.” This final phrase is the clearest indicator that people aren’t focused on the future of the company. If employees have a clear understanding of the vision set by leadership, no one will be talking in terms of their box on the org-chart. If you hear “us” and “them” language referring to internal teams, beware. Employees at innovative companies know it is always “our” job – we win together.

Stay on the alert to these dangerous phrases that might sneak into conversations in your organization. A great brand name no longer protects you from losing your edge. Remember Kodak?

Kathy Gersch is an Executive Vice President at Kotter International, a firm that helps leaders accelerate strategy implementation in their organizations. John Kotter is the chief innovation officer at Kotter International, and is the Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School.