Is It Time to Tear Up the Organizational Chart?

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Many experts believe workplace hierarchies hamper innovation. So it stands to reason that flattening management would reduce bureaucracy and speed decision-making. Eliminating middle managers could also save money. What’s not to like?

As companies that have tried to get rid of traditional top-down structures are discovering, there are downsides to upending the hierarchy. Zappos may be the latest example. The online retailer experienced 30 percent turnover in 2015 (10 percent more than usual) after eliminating its traditional corporate hierarchy and adopting a more collaborative self-management system called holacracy.

Those who study organizations weren’t surprised. In fact, the company’s experience was “completely predictable,” according to Maurice Schweitzer, a professor at the Wharton School at the University of Pennsylvania. “That hierarchy is extremely important for helping people coordinate, particularly for achieving logistical tasks.”

Google’s founders also once thought they would eliminate managers, but they quickly learned that the lack of hierarchy created chaos and confusion, says Schweitzer, co-author of Friend and Foe: When to Cooperate, When to Compete, and How to Succeed at Both (Crown Business, 2015).

Flatter structures may be good for startups, particularly those in creative fields. But for larger companies, an established pecking order helps people know who is responsible for what, he says.

“There’s always some tasks that nobody wants to do, even for those of us who love our work,” he says. “Without hierarchy, who does those tasks?”

People might complain about bureaucracy, but a Stanford University study has found that employees actually like hierarchy because of the clarity it provides. An established hierarchy also gives an incentive to those who want to work their way up the ladder.

Besides, if an organization doesn’t create a formal hierarchy, one will emerge anyway—and it may not be desirable, Schweitzer warns.

“Without an explicit hierarchy, without organizational values that determine who rises and who doesn’t, the hierarchy that emerges can easily reward the wrong things,” he says.

A Middle Ground?

Schweitzer and others believe it’s critical for organizations to find a middle ground—one where they can capture the benefits of both collaborative teams and formal organizational structures.

While many leaders believe that they must choose either a traditional corporate structure or no hierarchy at all, Deloitte research shows that “the organizations that get this right have the ability to rapidly create teams in the context of their formal organizational structure,” says Bill Pelster, U.S. learning solutions partner at Deloitte.

However, at many organizations, the “HR policies and systems really can’t accommodate the idea that a person belongs to a formal structure and a team structure simultaneously,” Pelster says. After an employee completes a team assignment, he often isn’t able to return to his old job and is left on his own to find another position. Sometimes he discovers he’s out of a job altogether.

“It doesn’t really encourage people to be risk-takers or to join teams around complex problems if the internal structures don’t support the movement between the two structures very easily,” he says.

Frequently, managers appoint their low-performers to such teams just to be rid of them, he says.

It’s up to HR to tell them: “If it’s important enough to form a team to tackle this problem, it’s probably important enough to give up some of our best resources,” Pelster says.

“HR could be a leading voice in helping to establish the policies and rules of the road” that would enable their organizations to create teams and still have a formal structure in place, he says.

Dori Meinert is senior writer/editor for HR Magazine.