You’ve probably spent most of your career working in hierarchical organisations, where senior managers make all the strategic decisions and tasks are delegated down the chain of command. This method of structuring an enterprise has been the standard for generations, but that hasn’t stopped firms from deviating greatly from it in search of a better way.
“Management theorists have always seen self-organisation as a desirable way of working because we all know the downsides of bureaucratic approaches,” says Dr Julian Birkinshaw, professor of strategy and entrepreneurship at London Business School. “Yet it’s always been hard to find an alternative model that works.”
Digital marketing agency Fountain Partnership is one company that’s making a concerted attempt to do so. The Norwich-based firm’s co-founder and director, Rebecca Lewis Smith, has several problems with the traditional pyramid structure. Chief among them is that, in her experience, “the most talented people in a company will often leave because someone else is occupying the position above them on the ladder”.
She also cites a 2014 survey of US employees by Everest College, in which three-quarters of respondents said that their line managers were the main cause of work-related stress.
“On a very fundamental level, I dislike the idea of holding one person accountable for someone else’s work,” Lewis Smith says. “That feels really infantilising.”
In 2017, when the firm grew quickly from 11 to 36 employees, she decided to flatten the organisation, removing management from the equation. “We aimed to create a structure where people could progress by going deeper into their areas of expertise, rather than moving up a traditional hierarchy,” she explains.
The benefits of restructuring
The inspiration for Fountain’s restructuring partially came from Brian Robertson’s 2014 book Holacracy, which has served as a manifesto for several business leaders who’ve sought to remove layers of bureaucracy from their organisations.
Under the decentralised model that Robertson propounds, all employees are given the freedom and responsibility to complete their work without reporting to a boss. Management tasks are divided into roles and distributed among staff. For jobs that require more collaboration, a series of self-organising ‘circles’ are formed.
Health technology start-up Luscii is another company that adopted a holacratic model after its co-founder, Joris Janssen, decided that he no longer wanted to be an authority figure. Management tasks at the Amsterdam-based firm were broken into 329 different roles, which were then divided among its workforce of 54.
“I don’t hire people, I don’t fire people, I don’t set people’s salaries and I don’t coach people,” Janssen says. He is now responsible for only two things, setting the strategic priorities of the business and allocating roles to people.
Explaining the benefits of the reorganisation, he says: “It’s much more efficient. We need to hold very few meetings, as each role description clarifies what is expected. It is also much simpler to shift a role than to change someone’s entire job, making it easier to tailor work to someone’s desired level of responsibility.”
Janssen has also noticed a marked reduction in staff turnover since adopting the new approach. “It has been great for employee loyalty,” he says. “We’ve got people who’ve been with us for seven years, which is not very common in our industry.”
When flat organisations fall flat
But the decentralised model has not worked for every business that’s tried it. US clothing etailer Zappos is one company that has ditched the holacratic rulebook, having eagerly adopted its principles in 2014. Another example is blogging platform Medium. Although its former head of operations, Andy Doyle, wrote in 2016 that there was “much we admire about the philosophy”, his business had found that holacracy was “getting in the way of work”.
Raffaela Rein also experimented with a flat hierarchy when she started her IT training business, CareerFoundry, in 2013. But she quickly found that her employees needed more management guidance than they were receiving. It also meant that people avoided asking important, yet difficult questions.
“It is counterintuitive, but in a flat hierarchy you don’t need less structure,” she says. “In fact, you need more – and stricter rules.”
Rein reports that her firm’s sales doubled after she ended its holacratic experiment, helping the company turn a profit for the first time in 2017.
“The main issue here is that holacracy replaced a vertical bureaucracy with a horizontal one,” Birkinshaw explains. “In other words, people who embraced holacracy found themselves involved in innumerable meetings where they sought to achieve alignment and clarity about their roles.”
Although the idea of a managerless world may sound utopian to some, flat organisations can quickly become unwieldy, he says, adding: “Some companies actually require a little imposition to make the bold decisions required for growth. A flat structure is uniquely ill-suited for doing that.”
Despite flaws, flat management structures continue to carry some appeal, as shown by Luscii, Fountain and Jellyfish (see panel). As long as the weaknesses of top-down management structures persist, businesses will continue exploring radical alternatives.
How to reinvent a business structure
Digital marketing agency Jellyfish is another business that’s decided to swim against the current. Its CEO and co-founder, Rob Pierre, found that a traditional hierarchical system was encouraging the wrong type of behaviour.
“In all honesty, Jellyfish had become a job factory,” he admits. “Our product was managing people.”
The chain of command had become long and unwieldy, and people’s diaries were dominated by one-to-one meetings. The management structure was placing so many constraints on productivity that Pierre felt obliged to act. In 2019, he set about unpicking the organisation, starting from the top. Senior managers were removed and heads of departments were replaced with steering groups where strategic responsibilities could be shared among employees.
With no line managers, promotions are also handled differently. Each employee is given a grade reflecting their salary and department. They are then given the chance to present a business case for their promotion. These are anonymised and judged by a panel of employees drawn from across the company.
Theoretically, anyone in the organisation could earn the same salary as the CEO under this system. “If someone were helping us to win all our pitches and helping to develop all our products, they could make a business case showing the value exchange and be remunerated accordingly,” Pierre says.
More than 800 employees have been promoted since the grading structure was introduced, 57% of whom are women. Pierre claims that removing unconscious bias from the process has helped the firm to recognise a more diverse array of talents.
“I was confidently told that women are less likely to promote themselves, so our promotion system was biased towards males,” he says. “I’m delighted that the system gives everyone an equal opportunity to make their case without having to be the loudest person in the room.”
Pierre believes that Jellyfish’s managerless structure could be copied successfully by any other enterprise. His advice to CEOs attempting such a change is to “focus on your desired outcomes, get everyone in leadership to become an advocate – and address any reservations immediately”.