Tall or Flat: Choosing the Right Model for Your Business and Yourself

My personal experience comes from two different worlds. One world is a big corporation with tens of thousands of employees, and I was one of the people who actually built it. The other world is my experience of working with small startups and watching how modern digital companies work.

No matter how different these worlds may seem, my peek into both of them suggests to me that the flattest business structures usually generate the best results. In these structures, employees work as micro-entrepreneurs within a company.

That means modern corporate models are based on maximum competition between people, leading to better quality at each level, lower costs, and a better client experience.

Middle Ages: Flat Earth and Flat Structures

By saying ‘modern’, I do not mean that flat, decentralized, or self-directed models are actually a novelty. Today, it might seem that previous human history was entirely based on a rigid hierarchy, but it is not so.

For instance, look at the feudal society typical of Western Europe’s early Middle Ages. At the time, vassals were empowered with quite strong autonomy over the lands and people under their rule.

Their powers included routine economic management, justice, and sometimes even monetary policy. Vassal’s duty to his lord was more or less limited to paying taxes (in monetary or natural form) and providing a certain number of military units in times of need.

Think of those duties as performance KPIs for an autonomous division in a modern flat-model company.

What’s also important, the king's control (think of him as a flat company CEO) was, in any case, weak, because the vassal's bond was with his own lord, not with his lord's master: ‘the vassal of my vassal is not my vassal’.

However, with the rise of absolute monarchies, empires, and colonialism, hierarchical systems indeed became mainstream.

These new social orders relied on overwhelming military power, and the military organization can be viewed as the pinnacle of the management model that I refer to as ‘classic’ in this article.

The classic model is aimed at controlling employees, assuming that without such control their performance would be poorer by default. Tight control means that each group of 10-15 employees must have their boss, who, in turn, is controlled by the next-level boss, and so on.

On one hand, such a model is based on control and lack of trust; on the other hand, it encourages deception between different management levels. So everyone is playing a game with low efficiency and very high costs.

Modern Findings and Success Stories

As tides changed in the 19-20th century, absolute monarchies gave way to democratic rule in many parts of the world. Subsequently, researchers started questioning the benefits of a traditional (i.e., ‘tall’, or highly hierarchical) management model, trying to apply the new social governance standards to corporations and studying ‘flat’ or less hierarchy-dependent structures.

A classic work on the topic, ‘Leadership and managerial success in tall and flat organization structures’, was released in 1972 by Edwin E. Ghiselli and Jacob P. Siegel. This paper is still being cited by other researchers half a century later.

After a thorough study of many companies, Ghiselli and Siegel came to the conclusion that ‘there is a link between employee success and the level of autonomy and self-realization in flat organizations, and there is more participation in broader decision making creating a sense of ownership, which in turn, increases productivity’.

Another study, ‘Relation of Organizational Structure to Job Satisfaction, Anxiety-Stress, and Performance’ by John M. Ivancevich and James H. Donnelly, Jr. published in 1975, revealed that salesmen working in flat organizations perceived more satisfaction with respect to self-actualization and autonomy.

Also, they perceive lower amounts of anxiety stress and perform more efficiently than salesmen in medium and tall organizations.

Based on these findings and my own empirical experience, I think that corporate management should be based on empowering employees and forging mutually beneficial relationships between them.

Taxi drivers and delivery couriers are good examples of such relations and management. They work not because they are controlled by their bosses, but because they are partners of a taxi operator or a delivery company.

It is an entirely different type of motivation, which I consider to be much more effective in all aspects, from economics to client experience.

However, the success of flatness and decentralization is not limited to drivers and couriers alone. Arguably the most famous and successful example of decentralization is Johnson & Johnson, a company with an over 100-year history.

It is worth noting that it does not come from the tech sector, operating in consumer healthcare, pharma, and medical technology.

J&J’s modus operandi is based on granting full autonomy to each of the more than 265 companies it owns located across 60 countries and working in three major business segments.

The company is in constant search of new assets. After an M&A deal, the new asset continues to work as a separate entity under the common brand.

Caution: do not get flat broke

For the sake of truth and accuracy, I cannot omit flat structure failure stories as well. Different companies, including some cutting-edge digitals, rejected the boss-less concept at some point.

These examples include Zappos shoe company; Treehouse online trading platform; Buffer social network management service; Medium social journalism platform launched by Twitter co-founders and GitHub project hosting and collaboration service (thank you Lighthouse Blog for this list and for the scathing article on the topic).

Being an avid advocate of a flat and decentralized business model, I do not mean to promote diving into it without a second thought. Nor do I intend to proclaim hierarchy altogether evil.

After all, as Bob Sutton, Stanford professor, bestselling author, and speaker said, ‘If you can find a group of people (or dogs or baboons) without a hierarchy, I want to hear about it. Yes, power and status differences are sometimes reduced, but hierarchy is a fact of organizational life.’

Choosing the right way to set up your business leaves no room for the luxury of being dogmatic, maximalist, or naive. A business model, no matter how tall or flat, is just a tool. And there is no such thing as a tool equally good for everyone.

Considering which model suits us most, we should not swing between extremes, but rather shift our emphasis to either of the poles, gently and carefully.

Two major things to keep in mind are: a. whether a flat model would benefit your particular business and b. whether you are personally up to it.

One of the most important outcomes of the Ghiselli and Johnson study is that flat organizations rewarded managers who worked well and enjoyed situations that demanded autonomy and independence and also that flat organizations work better than tall organizations in encouraging individuality.

Their peers, Lyman W. Porter and Edward E. Lawler III found that organizations with many reporting levels (i.e., ‘tall’ ones) were better in producing security and the satisfaction of social needs.

In other words, flatness is good for people with a specific mindset and a certain level of courage and ambition. But it might disappoint and frustrate those seeking a safe haven. Make sure you and the people you are going to lead match the right description. Think twice, and be realistic.

Models and Rules

If, at some point, you come to the conclusion that flatness and decentralization are for you, there is a whole new world out there.

There are a lot of specific models to choose from, starting from a classic bunch of friends launching their garage-based startup to more sophisticated schemes for large-scale structures. It all depends on your needs and the circumstances.

For instance, in the wake of the COVID pandemic, McKinsey & Company suggested introducing decentralized structures as an effective means of crisis management:

Source: https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/to-weather-a-crisis-build-a-network-of-teams

Also, there is an interesting thing known as a ‘helix’ organization, positioned as a decent tradeoff between the centralized and decentralized worlds:

Source: https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/the-helix-organization

There are so many studies dedicated to choosing the right alternative model configurations that they simply would not fit in this article, which is anyway aimed at introducing readers to the topic.

However, there are some rules of thumb worth sharing, useful to anyone opting for flat and decentralized models with scaling potential.

In 2021, a group of Harvard Business Review contributors studied several self-directed companies located in the greater Helsinki region, often referred to as the ‘Silicon Valley of the North’.

Among these companies were Supercell and Futureplay game developers, Futurice and Vincit tech consultancies, and Wolt, a last-mile delivery company. They came up with four major principles that should guide self-directed companies as they grow:

1. Self-direction is something that can easily be lost unless it is actively maintained and promoted. This requires that companies come up with solutions to the new challenges that arise as they grow (for example, through organic modular design) and that they work hard to maintain their spirit and values (for example, through stories that encourage a shared sense of identity).

   
   

2. It matters how coordination is organized and control exercised. Usually, this requires a mix of enabling mechanisms that do the trick without undermining self-direction.

   
   

3. Self-directed organizations need to share information in non-hierarchical ways. This requires that companies take transparency seriously and use AI to share data in novel ways throughout distributed organizations.

   
   

4. Self-directed companies that succeed while they grow are those that invest in learning, celebrating successes and failures, and updating their identities by promoting living stories.

There seems little to add to that apart from one note, last but not least. This truly universal rule was brilliantly formulated in an interview with The New York Times ten years ago by Mark B. Templeton, president and C.E.O. of Citrix, the Internet software company:

‘You have to make sure you never confuse the hierarchy that you need for managing complexity with the respect that people deserve. Because that’s where a lot of organizations go off track, confusing respect and hierarchy, and thinking that low on hierarchy means low respect; high on the hierarchy means high respect. So hierarchy is a necessary evil of managing complexity, but it in no way has anything to do with respect that is owed an individual.’