Here is an excerpt from an article written by Markus Reitzig and Kathrin Heiss for MIT Sloan Management Review. To read the complete article, check out others, sign up for email alerts, and obtain subscription information, please click here.
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Shifting to self-managed teams and worker autonomy has been linked to greater engagement and performance. But not every employee likes the change.
Managers today are attuned to current thinking that how companies are organized matters to their performance, so they frequently adjust the corporate structure in the interest of improving outcomes. But the effect those changes may have on the workforce itself is less well understood.
While research has shown that employees are a heterogeneous group and that attracting and retaining talent involves a mix of incentives, we know less about how various types of organizational structures appeal to different workers, and whether those structures bind them to their employer or make them want to leave.1
The more radical the changes that senior leadership intends to implement, the more critical this question becomes. Among the most dramatic transformations observed in the corporate landscape these days are moves from traditional, hierarchical organizing to working with flatter structures featuring fewer layers of command. These structures offer more autonomy but also impose burdens of self-organization on employees.2
Top management must think seriously about which structural changes to implement and which complementary measures to take to tailor the composition of their workforce to meet their needs. But first, they must have greater insight into how a shift from a hierarchical work structure to a more self-organized one may affect the composition of the workforce. They must understand what types of individuals will be newly drawn to the company, which ones will be likely to leave, and how individual case conditions may affect the outcome.
To develop some initial guidance for implementing a flatter structure, we conducted a large-scale empirical study using data from more than 5,500 companies in the U.S. financial services industry that had significantly de-layered their hierarchies from 2000 to 2022. We found that, on average, workforces feature a higher share of conscientious, agreeable, and open individuals a year after the company has de-layered its structure. We then conducted in-depth case studies with two affected companies to better understand what drives the differences between organizations.
Why ‘Structure Follows Strategy’ Is Too Simplistic
Many senior strategists agree with scholar Alfred Chandler’s influential dictum, dating to 1962, “Unless structure follows strategy, inefficiency results.”3 In practice, this means that a leader must consider their clients, offerings, and value delivery before they split up the work among their people. And only once they have distributed all of the tasks among employees will that leader know how to reintegrate all of the pieces people contribute, channel their communication, give them decision rights, and eventually assign managerial roles — in other words, only then will the leader understand how to structure the company to achieve collaboration.4
It is that kind of contingency thinking that has led to a rather standardized approach for dealing with questions of structure — one that suggests that C-level managers can pick from a menu of stereotypical forms of organizing, depending on the context they are in. Many leaders — with disquieting automatism — still gravitate toward implementing stereotypical organizational forms, depending on the circumstances. When their companies get bigger, they move toward a divisional structure; when they downsize, they prefer a functional one. And when it all becomes complex and dynamic, they might choose to move to the so-called M form, with multiple semiautonomous divisions.
However, this approach is out of step with today’s corporate reality, where objectives other than strategy execution have gained importance. Some leaders may seek to experiment with different structures in order to foster the learning and adaptation needed to identify new opportunities. In the late 1980s at Danish hearing aid manufacturer Oticon, CEO Lars Kolind introduced the term “spaghetti organization” as he sought to turn the company’s fortunes around. The nonhierarchical, nondivisional, non-function-based, project-based form of work in a spaghetti organization was meant to unearth and identify new, viable business ideas.5 Much of what Bill Anderson, the current CEO of Bayer, is now doing at his organization is reminiscent of that approach.6
In any case, we’ve seen that organizations pursuing similar objectives may differ dramatically when it comes to structuring work. A plethora of contemporary management approaches — such as (scaled) agility, scrum of scrums, or Haier’s RenDanHeYi — rely on organizing with fewer layers of managerial authority while giving more autonomy to the workforce. These different structures appear to work for very different people, irrespective of the strategy the companies pursue.7
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Markus Reitzig is professor of strategic management and holds the university-endowed Subject Area Chair at the University of Vienna. He is the author of Get Better at Flatter: A Guide to Shaping and Leading Organizations With Less Hierarchy (Palgrave Macmillan, 2022). Kathrin Heiss is a research associate and doctoral student at the University of Vienna. The authors work in the university’s Strategic Management Group, which develops and applies data-based tools for organization design and workforce analytics to help companies during organizational transformation.