When an organization is ‘flat’ employees report directly to senior managers; but as management layers increase, so too does the hierarchical gap between employees the CEO and the C-suite, leading to decision-making being focused at the top of the organization. So should firms eliminate these layers in order to shift more decision-making powers downwards? Well, this Idea shows that this may in fact achieve the opposite. Flattening can lead to more control at the top.
Flattening (or delayering) of hierarchies within an organization has been called for by much recent literature. In theory, flattening is supposed to help push decisions downwards to enhance customer and market responsiveness and improve accountability and morale. In this Idea, however, Harvard Business School’s Professor Julie Wulf suggests that many companies that flatten their hierarchies to achieve these benefits do not end up with them at all. In fact, flattening can lead to exactly the opposite effects from what it promises to do.
Using a number of methods to put this to the test — including CEO interviews and a large sample panel dataset — Wulf found that flattening has transferred some decision rights from lower-level division managers to functional managers at the top. In other words, though CEOs did indeed take steps to delegate some decision-making to lower levels, ultimately flattened firms exhibit more control and decision-making at the top — precisely the opposite of what it sets out to do.
Other main findings include the following:
Most firms flatten to push decision-making downwards, but as this Idea shows, often this has the opposite effect. This structural change is important to understand, as it has implications for not only those that make decisions, but also for how decisions are made. This makes clear that flattened firms will require a different system to govern the hiring, development, motivation and decision-making of managers.
The danger is that division managers may be hired to “be the boss” but will in fact be out of sync with the way decisions are made in the organization. As human capital is one of the most important resources for today’s firms, they should consider these consequences carefully before setting out to delayer their hierarchies.
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