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3 Ways To Ditch Hierarchy And Improve Company Performance

Here are three ways entrepreneurs can institute and maintain a productive horizontal structure.

Photo: Per Bylund, research professor at John F. Baugh Center for Entrepreneurship and Free Enterprise, Baylor University; Source: Courtesy Photo
Photo: Per Bylund, research professor at John F. Baugh Center for Entrepreneurship and Free Enterprise, Baylor University; Source: Courtesy Photo

“The world isn’t flat – but maybe your company should be: Businesses without hierarchies may actually perform better,” according to Forbes contributor Lisa Wirthman. “Online retailer Zappos is the latest company to do away with hierarchy. By the end of 2014, CEO Tony Hsieh plan[ned] to replace Zappos’ traditional structure with Holacracy, a flatter operating structure with no job titles or managers.”

The horizontal, or “flat,” business structure is revered as a modern invention. This model boasts few or no levels of middle management between employees and founders.

“This ‘flattened’ hierarchy promotes employee involvement through a decentralized decision-making process. The idea is that well-trained workers will be more productive when they are directly involved in the decision-making process rather than closely supervised by many layers of management” (Boundless.com).

 

Horizontal Ambition

It stands in stark contrast to older corporate hierarchies and the rigid order of historic societies in which there was widespread loss of information and knowledge that could’ve solved customer problems and improved processes.

As Jason Fried, co-founder and president of [Basecamp], explains: “we revere ‘horizontal’ ambition—in which employees who love what they do are encouraged to dig deeper, expand their knowledge, and become better at it… Instead of rewarding high performers with managerial responsibilities—which often drives people further away from the job they are actually good at—we reward with responsibilities closer to the work. We also throw in above-market salaries and generous benefits…” (Inc).

Flat organizations empower employees who are closest to the problem, strengthen the organization as a whole and make it more agile, responsive and robust. As innovative businesses adopt this approach and technology streamlines communication, the flat structure seems like a product of the Information Age—but it has actually been around for decades.

 

Evolution of Hierarchy

Hierarchies appeared to work before because firms used simple production processes in slow-changing markets and there were no innovative competitors. When production was simple, managers could realistically micromanage the firm and treat workers like robots. But with advanced and highly specialized production, micromanagement simply isn’t possible.

So, the role of management had to change. It shifted from “command and control” to its value-creating function: a production facilitator through coordination, organization and support of the firm’s operation.

Photo: Diagram of flat organizational structure; Source: Boundless.com
Photo: Diagram of flat organizational structure; Source: Boundless.com

 

The flat organizational structure was adopted in customer-centric industries in the ’80s and became a pillar of Jan Carlzon’s management philosophy. As president of Scandinavian Airlines System, he took the company from being chronically late and losing $17 million a year to being the most punctual airline in Europe.

Startup founders don’t have thousands of employees to deliver value to customers like airlines do. But the issues are the same, and management’s role should follow the same course.

Here are three ways entrepreneurs can institute and maintain a productive horizontal structure:

 

  1. Hire good people.

    By “good” people, I don’t mean those with the best CVs or those who can sell themselves in 15 seconds during a phone interview. Good employees are dependable, trustworthy and self-motivated. Choose people you only need to support, not monitor.

    Hiring bad employees can derail morale and productivity – costing your startup considerably. Hiring the right people starts with asking the right questions. Don’t just ask interview questions based on an applicant’s past; ask about their goals for the future and how they plan to impact your company.

    Make sure to ask interview questions that reveal the applicant’s intellectual curiosity and desire to continually improve, such as “What book are you reading now?” and “If you could take a course in any subject, what would it be and why?”

  2. Practice “management by trust.”

    Instill trust in your workforce by delegating decision making to capable individuals or groups and make room for mistakes. The way people recover from setbacks hinges on their beliefs about learning and intelligence. Those who perceive intelligence relative to effort will learn from mistakes and emerge stronger than before.

    Position mistakes as learning opportunities to promote professional growth. When you trust your employees to forge their own paths, they’ll rise to the occasion. Let customers speak with employees who are closest to the problem, and have faith in their ability to deliver the right solution. But remember that blind trust is, well, blind.

    After delegating work to your team, follow up with employees and customers. Make sure they’re happy with the outcome, or suggest further improvement. To build a prosperous company, you should be available, provide support, ask the right questions and make sure everyone is improving.

  3. Be transparent.

    Show your cards, including your faults and problems, and let employees know they’re part of the decision making process by seeking their advice. This comes back to trust — if you trust them, you’ll appear transparent and earn their trust as well. You don’t have to share everything, but secrecy and exclusion are the wrong approaches.

    The success of your startup boils down to your team’s ability to create “moments of truth” in every customer interaction a key principle in Carlzon’s managerial philosophy. In his mission to tear down organizational hierarchies and revamp his airline, he made every layer of management responsible for supporting those working closest to the customer.

    To make these moments effective and valuable, you need to employ innovative, empowered, confident, responsible individuals — not managed robots. This can only happen if you give up that hopeless quest for control and embrace the productive managerial role.

 

This article has been edited and condensed.

Per Bylund is a research professor at Waco, Texas-based John F. Baugh Center for Entrepreneurship and Free Enterprise of Baylor University. His areas of research are entrepreneurship, management and economic organization. Connect with @PerBylund him on Twitter.

 

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