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Posted by Andrew on 22nd February 2010
Tall vs. Flat Company Structures

An interview with Cristóbal Conde, president and CEO of SunGard, recently appeared in the New York Times. I found it particularly interesting because the debate between flatter structures and more hierarchical structures and their relevance for today is an ongoing issue.

The interview didn’t quite capture the issue of confusion between structures and culture. We cannot escape the fact that we are in mature markets. Few companies and few industries are not within the tail end of the cycle of maturity, and I would have thought an organisation like SunGard would be no exception. Mature companies tend to have ‘taller structures’ in which tasks, roles, responsibilities, accountabilities, and even governance are made very clear. You need that–you need to know what people are doing and why they are doing it because you’re going to make as much money from the products you sell and their quality as the costs that you control. So tall structures have two functions: clarity of roles and objectives, and cost control mechanisms, both of which are necessary. Badly handled, taller structures are authoritarian and unpleasant. Well handled, they are a discipline that liberates. Once people know what their job is, they can really go ahead and not worry about the politics of going over to someone else’s territory, etc. So there is something to be said for taller structures — it’s not a very popular comment, but it’s a necessary comment.

The next question is: can you have a taller structure with a flatter structure? You possibly could if you are at the beginning end of the life cycle, where an individuals may have a number of reporting relationships which cut across a number of teams or they may have dotted-line relationships that cut across various parts of the organisation. That should not be confused with flatter culture in which you have the same clarity of role relationships. You have well-formed and well-focused teams, clear accountabilities, you know who your boss is, but you also have a mindset of flexibility, cooperating, working across boundaries, sharing problems–at times putting your own financial targets and budgets secondary to the broader corporate concern, well aware that ironically someone might get advantage from your contribution which you do not financial realize for your own budget.

I think that is what really was behind this particular article. We need mindsets of cooperative cultures, we need to help our people understand how to get better engagement and alignment across the structure. we need to get clarity of communication; it’s very important to live the values: just imagine if the CEO is talking about flatter structures, cooperating and so on, but comes to meetings and is acting in a very dictatorial manner, and everybody senses that within that person’s top team, what you have is a team that essentially doesn’t bring up the uncomfortable hypocrisy, doesn’t challenge their boss, and yet the boss is telling everybody else to challenge the bosses down the structure. Nobody’s going to do it.

The biggest issue about flatter cultures is living the values that you promote, and the people that need to promote those most are the board members and the top team members, and that’s where a lot of the flatter culture ways of operating really do fall apart. Probably only 30-35% of organisations that genuinely want this flatter, more innovative way of operating, being flexible about whose team you’re working on and why, are actually able to achieve it.

When you genuinely have flatly structured organisations, there is almost always a business reason. You have an innovation in your product array that requires specialists to go right across the structure, possibly have two or three reporting relationships for very good reasons, each of them have a clarity of target, they each have to allocate their time to different teams or different departments, and those departmental heads have to behave and in a sense account for that person, or judge that person’s performance either for the bits they do, or one of the heads will be developing that individual on behalf of the other bosses.

So a flatter structure is actually as much a business lever as the taller structure, but in relatively few organisations do actually you have these truly flat structures. Where you have them, it’s often an expression to go right through the supply chain, so a number of skills get outsourced; it makes sense that those specialists are running their own organisations and they contract back some of those skills to the parent company. And there in a sense you almost have the Japanese concept of keiretsu, the flatter structure going through the supply chain. But the number of companies that really do have such flat structures (not counting very small companies that need to be flat) is relatively small. The word structure has to be substituted by the word culture, and that is more about living values rather than a structural form.

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