I work for a medium-sized company (~2500 employees), and our CEO is a big believer in “lean” management techniques. He says he wants to make our company feel and run like it’s “small,” no matter how much we grow. With that in mind, he recently initiated a re-structuring process in which one, and in some cases two layers were eliminated from our organization chart, depending on the department. So far though, I haven’t noticed much of a difference – but I guess it’s still early. One thing I did appreciate is that no one lost their job as a result (a few people chose to leave once they learned their role would be changing, but it was their decision). Still, I’m wondering if all this was worth it – or did we just re-arrange the deck chairs here..? – Name withheld

First of all, who uses an organization chart anymore??

Even for someone like myself, who has a deep and abiding interest in management and organizational theory, this strikes me as equivalent to spotting a unicorn.

Nevertheless, it is true. The idea that “flattening” your org chart—or the organizational hierarchy—can improve operational efficiency remains widely accepted. As Tom Peters, co-author of In Search of Excellence (1982), explains:

“Excessive layering may be the biggest problem of the slow-moving, rigid bureaucracy.”[1]

It’s also a notion that dates back to beginning of the 20th century, if not earlier. Organizational theorist and Nobel Prize winner Herbert Simon acknowledged its value back in 1940, arguing:

“Administrative efficiency is enhanced by keeping at a minimum the number of organizational levels through which a manner must pass before it is acted upon.”[2]

(Of course, Simon also pointed out that limiting a manager’s span of control—that is, the number of employees reporting to him/her/them—is likewise thought to improve organizational efficiency by preventing managers from spreading themselves too thin. But this requires increasing the number of levels in the hierarchy.[3] So go figure.)

What your CEO may not realize, however, is that employees experience the degree of “flatness” to their organization (or lack thereof) in another important way. For them, the diagram’s vertical dimension, or Y-axis (if you want to get technical about it) may not be so much about how many levels of management there are in the hierarchy, but something far more tangible:

Pay.

Say, for instance, I drive to work in ‘05 Honda Civic because that’s all I can afford on my meager salary – but my better compensated manager parks their Bentley in a spot reserved for them near the front of the building. That sort of disparity in compensation/perks will almost certainly result in a very different dynamic between the two of us than if we both parked our Priuses next to each other in the company lot.

Now, I’m not saying our relationship still can’t be good. It may even be quite productive.

But given the organization so obviously values my manager’s contributions over my own, it shouldn’t surprise anyone if I were to become more deferential to management’s edicts as a consequence – even if I know for a fact they’re misguided. Conversely, I might disengage from my work – or become less excited about contributing to organizational problem-solving, and/or pursuing my employer’s stated goals. If they’re gonna pay my boss so much, I might think to myself, they can figure it out.

And that, of course, would be to the disadvantage of the organization.

So if this “restructuring” resulted in some cost savings for your company, as I suspect it did, yet that $$$ went into the paychecks of its executives instead of yours and your colleagues’, your CEO may actually have made the organization feel taller in this regard. Ironically then, that could undo any good that might have come from this exercise.

I applaud his efforts to ensure none of this cost anyone their job, however. Had he not, this could condition workers to fear change – and that’s bad in every sense of the word. A willingness to embrace what is new, different, or innovative is quite literally the lifeblood of any healthy business.

I also empathize with your CEO’s desire to make your company “feel and run as if it were small.” Having worked for a start-up myself, I recall how exciting it can be when everyone’s so busy working their ***es off that they don’t have time to worry about hierarchy, or passing any but the most critical decisions up and down the chain of command. If he was a founder, perhaps he misses how things were when the business was first starting out?

Nor is he wrong to blame the creeping effects of bureaucracy for this change. But a better way to get that entrepreneurial feeling back would be to distribute decision-making power more widely – especially to those who occupy the so-called “bottom” of the organizational pyramid.

Even a decision as seemingly important as how many layers to eliminate from management.

NOTES:

[1] Peters, Thomas and Robert Waterman. In Search of Excellence, 1982 (HarperBusiness Essentials Edition, New York, 2004), p. 270.

[2] “The Proverbs of Administration” by Herbert Simon. Found in Classics of Organizational Theory (5th Ed). Edited by Jay M. Shafritz and J. Steven Ott. 2001 (Harcourt), p. 115.

[3] Ibid., p. 115.