Types of organizational structure for improved employee engagement
Engagement 6 minute read

Types of organizational structure for improved employee engagement

Rise | November 8, 2018

Having trouble fostering cross-functional collaboration at your company? Struggling to overcome communication hurdles or dealing with difficult power dynamics? These employee engagement challenges could stem from your organizational structure.

Whether you centralize all the power at the top, encourage autonomy and distribute authority through the ranks, or follow an organizational chart that fosters a combination of these two, the way your company organizes itself can dictate a great deal about your culture and how your team communicates.

More, companies are abandoning the hierarchy in favour of flatter organizational structure. There's no questioning the importance of organizational structure, but does the trend of adopting new organization structures live up to the hype? Let's explore some examples.

Traditional hierarchy

“Traditional leadership hierarchies are dead, or should be,” says an Inc article, citing the onset of the open-source software development movement as the inspiration for a new kind of organizational structure. “In open source, code talks. The best source code ultimately emerges. You can apply that same principle to how you make decisions. The best ideas emerge—if you let them.”

Making room for the best ideas sounds great in theory, but does it work? Hierarchies have been the go-to model of organizing power and decision-making, and for a number of good reasons. Having a clear chain of command not only simplifies decision-making by centralizing authority and decreasing back-and-forth, but it also provides clarity around roles and responsibilities and lays out the path for growth: do good work, move up.

Hierarchies are also the source of a myriad of problems. The more layers there are in the chain of command, the more opportunities there are for miscommunication. Not to mention the bureaucratic bottlenecks that can arise when one person is made the endpoint of all major decisions. Have you ever heard the phrase, “That’s above me”? It reveals one of the key problems with hierarchies: lack of autonomy.

Types of hierarchical structures

Not all hierarchies are created equal, either. According to this Chron article, there are three common types of hierarchies: functional, divisional, and matrix. In all three categories, a central figurehead like a CEO is followed by a layer of executives or VP-level talent. In a functional hierarchy, these vice presidents are organized based on their area of expertise: sales; marketing; product; etc. In a divisional hierarchy, they’re organized by either geography, like North America, Asia, Europe, etc., product—mobile, web, etc.,—or another relevant categorization. The matrix hierarchy is a combination of these two models.

Which is best? That depends on your specific industry, size, purpose, and values. Like all culture-building practices, there is no one-size-fits-all solution. Traditional hierarchies can still serve your business well if you’re aware of the common challenges and have mechanisms for dealing with them. If leadership is hoarding power, for example, try encouraging more transparency among the C-Suite. Revealing the behind-the-scenes of decision-making can help the higher-ups feel more accountable, and make the rest of the organization feel more involved.

Still, hierarchies aren’t the only way of structuring talent, and more and more forward-thinking companies are trying out newer, flatter organizational structures—with varying results.

Flat organizational structure

“In flat organizational structures, employees are empowered and expected to take responsibility for a range of traditionally managerial decisions in their daily routines,” writes David Ingram in Chron.

Valve, an American game development and distribution company, is a well-known example of a company that has implemented a flat organizational structure. Rather than answering bosses and adhering to assigned roles, employees at Valve are encouraged to move freely throughout the organization and feel empowered to make their own decisions.

“Critics say flat organizations can conceal power structures and shield individuals from accountability,” writes Klint Finley in Wired, referencing the book, The Tyranny of Structurelessness by Jo Freeman. “‘There is no such thing as a structureless group,” Freeman writes. “Any group of people of whatever nature that comes together for any length of time for any purpose will inevitably structure itself in some fashion.’”

So when do flat organizational structures work? According to Wikipedia, they are, “generally possible only in smaller organizations or individual units within larger organizations. When reached a critical size, organizations can retain a streamlined structure but cannot keep a completely flat manager-to-staff relationship without impacting productivity.”

It seems, for many organizations, some combination of flat and hierarchy would be the ideal structure.

Holacratic structure

Holacracy is becoming increasingly common. Not quite a hierarchy but not entirely flat either, the organizational structure of holacracy is a hybrid system that offers, “structure and discipline to a peer-to-peer workplace,” according to Holacracy.org.

Within holacracy, job titles are replaced by roles, and distributed leadership enables a more entrepreneurial culture. Rather than waiting for approval from a manager to take action, employees of a holacratic workplace are able to take action themselves. When an issue needs to be fixed or a new idea begins to take form, small teams form in order to address those specific needs. This keeps the organization agile and the team empowered to take action.

Holacracy offers an interesting look into the potential for alternatives to traditional hierarchies. Because of how complicated it is to implement (some say it takes years before you start seeing its benefits), many organizations cite costliness of change management systems among their reasons for not giving it a try. Still, it will be interesting to see how long this buzzword keeps buzzing.

Which works best?

Holacracy. Flatocracy. Adhocracy. Bureaucracy. Meritocracy. If you’re looking to foster cross-functional collaboration and employee engagement, which “ocracy” is right for you? Or should we scrap these “ocracies” altogether in favour of the traditional, tried-and-true hierarchy?

Whether you choose the structure of a traditional hierarchy or the autonomy of something flatter, you’re not just making a choice about structure. You’re making a choice about your company culture, your employer brand, your core values, and the kinds of people you’ll be hiring and working with.

So perhaps the first step is to establish who you are as a company, and who you want to be. If you’re a traditional, large organization with multiple departments, a hierarchy might be best for you. If your team is a collection of entrepreneurial-minded self-starters and trail-blazers, you may be well on your way to a flat structure already. And if you’re somewhere in between, test out the holacracy hypothesis.

Whatever you decide, remember to ask for regular and honest feedback from your team to ensure that your structure is working effectively.

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