Reference no: EM132898510

What are the benefits and the costs of flattening the organization? Do the benefits generally outweigh the costs?

Reference:

Tata Motors and Tesla are two of a large number of firms that have taken steps to flatten their hierarchical structures. Tata, an India-based automaker, cut half of the levels in the organization, going from 12 to 6 levels of management, after the firm hired a consultant to help improve its structure. Similarly, Tesla announced in 2018 that it would flatten its structure "to improve communication." These firms are not alone in their drive to cut out layers of management. One survey concluded that 93 percent of polled firms indicated they intended to flatten their organization in the near future.

Proponents of flat leadership structures argue they offer cost, flexibility, and creativity benefits. First, flatter organizational structures are designed to be more responsive and faster acting. By cutting out layers of management that analyze and approve initiatives developed by lower level employees and teams, the firm empowers these teams to act quickly. Second, flatter organizations allow workers and teams to have autonomy, a desirable attribute for younger employees. Third, by cutting out layers of management, the firm reduces the cost of a large administrative task. Fourth, feedback loops through the organizational structure are quicker and shorter. Top level managers are closer to line employees and the market, allowing them to have better insight into the dynamics within the firm and the market.

However, critics have argued that flattening organizations face unintended negative consequences. First, management attention becomes stretched. With the expanding scope of their responsibilities, the remaining managers find that the bulk of their time is spent on communication. A number of studies have found that managers in flat organizations spent 80 to 90 percent of their day communicating, leaving little time for other tasks. This can lead to "interaction fatigue" on the part of managers. Second, middle-level managers often serve as critical negotiators between different units in the firm and between front-line employees and top managers. In cutting these managers, some firms have found that frictions between units have increased. Third, the removal of middle manager positions can be demotivating for some employees since there are reduced opportunities for advancement into the ranks of management. Echoing these concerns, Harvard researchers Thomas DeLong and Vineeta Vijayaraghavan argue that long serving middle managers are a competent and steadying influence in the firm. They are experts at how the firm operates and can insulate the firm from impulsive decisions that come from either the top or the bottom.

These conflicting perspectives suggest that organizations seeking to flatten their structures need to be aware of both the potential costs and benefits of the action. But the ultimate value of the action appears uncertain.