What Are the Differences Between Flat & Hierarchical Organizations?

Of all the things a new business owner has to worry about, organizational structure isn’t one of them. The structure of the smallest companies likely has just one building block -- the owner. At some point, though, growth demands helpers. The owner hires employees, establishes work roles and authority and, eventually, a formal organizational structure. The first structure typically adopted is hierarchical. The owner crowns the structure, employees provide its foundation and management straddles the middle. Though traditional, this setup is ill-suited for some companies. Newer flat structures represent an opposite, alternative approach to building an organizational structure.

On an organizational chart, a flat organization looks more horizontal than vertical. Hierarchical organizations, on the other hand, are more vertical than horizontal. These companies gain their height from layers of middle management. Remove the management and the organization becomes flat. Some companies restructure by doing just that, aiming to make a company more responsive by removing bureaucracy.

Removing management layers leaves a power vacuum that employees must fill by taking on more responsibility, including decision-making authority. Decentralizing power this way means employees of flat organizations become more independent and active than those of hierarchical organizations. Decisions tend to be made by whoever is the expert on the matter at hand. The central powers in a hierarchy hold the decision-making authority. Employees merely carry out directives.

Management in vertical structures means an enforced chain of command, rules, oversight and control measures to get predicable results. Jobs are specialized and unchanging. This structural approach can be likened to an organizational machine. By contrast, the lack of management in flat organizations creates a loose, flowing environment considered organic. Organic structures change and grow according to the times. In the flat team organizational structure, for instance, employee groupings may be temporary, existing only until a project is completed.

The bureaucracy of hierarchies makes tall organizations slow-moving and rigid. The lack of it in flat organizations imbues nimbleness. Such companies can innovate in response to industry changes, the employees creating and inventing solutions to the challenges of the environment. The mechanized structure may not have the innovative ability of the flat structure, but it can produce a controlled and predictable output efficiently and on a massive scale. Mass production means economies of scale and quality control.

In a stable market, being able to mass produce a standardized product is a competitive advantage. Mechanized companies can take advantage of predictable conditions to crank up production, capitalize on economies of scale and become cost leaders. The momentum of the organizational machine becomes a problem in markets where sudden, unpredictable changes are the norm. In such dynamic environments, adaptable, innovative companies -- those with flat structures -- are the order of the day.