In business, ‘flat’ structures rarely work. Is there a solution?

Elizabeth Claypoole was taking her dog to daycare when she bumped into Eric Ward, one of the CEOs of Ag Biome, a North Carolina biotechnology company where she is chief of human resources. When the nursery receptionist asked how they knew each other, she said, “Well, he’s kind of my boss.” Mr. Ward flinched. Ag Biome operates with a “flat” business model: It eschews managers and prefers commissions instead. Despite their titles, the co-founders, Scott Uknes and Mr. Ward, are “anti-CEOs” according to Ms. Claypoole.

Ag Biome is one of many modern companies and organizations that have experimented with or embraced a flat or non-hierarchical corporate structure; include other examples sumaa wholesale company and workers’ cooperative, and the video game studio Valve. For these companies, the structure is unusual can be driven by principles, politics or revenue. The result is the removal of layers of management and the design of businesses around democratic decision-making.

According to Saerom (Ronnie) Lee, an assistant professor of management at the Wharton School, flat structures work best for smaller companies, including start-ups. from the University of Pennsylvania. “As companies hire more employees and grow in size, they typically run into major challenges in coordinating these employees.”

But do flat structures work? André Spicer, a professor of organizational behavior at Bayes Business School in London, said that while the “cultural zeitgeist growing up was that hierarchies are bad,” there is a growing recognition of both their necessity and the fact that they often recur in companies that reject them, at least in theory. “People are not just willing to jump on the bandwagon and say, ‘Yeah, let’s have this non-hierarchical structure.’ There is a certain suspicion about it.”

In 2012, Valve’s new hire handbook has been leakedrevealing its defining characteristic: eschewing managers in favor of an autonomous system in which employees can move between projects at will.

But in a 2013 interview, Jeri Ellsworth, a former Valve employee, said that at the company, “there’s actually a hidden layer of powerful management structure in the company and it felt a lot like high school.” a report in 2022 by People Make Games, a YouTube video game investigative journalism channel, highlighted Valve’s issues with diversity and job rating, among others. (Neither Ms. Ellsworth nor Valve responded to requests for comment.)

Clifford Oswick, a professor of organizational theory at Bayes, pointed to “inherent risks” of discrimination in companies with extremely flat structures. The companies can reflect the same prejudices as society, with no safeguards to avoid them. This means that often in such companies, Mr. Oswick said, “you still have privileged middle-aged white men making decisions at the top.”

Mr Spicer is particularly critical of start-ups that have tried, or claimed to be trying, flat structures, suggesting that failures – and at least one major scandal – have emerged from these workplaces. He pointed to Elizabeth Holmes and Theranos, her healthcare technology start-up. In a 2015 interview, Ms. Holmes said said Theranos was “a very flat organization and if I have learned anything, we are only as good as the worst people on our team.”

“The claim that companies like Theranos had a flat structure meant that the company fit into a widely recognized type of agile technology company,” said Mr. Spicer. In addition to attracting investors and employees, the myth meant “that these companies don’t have to go through the difficult and tedious process of putting in place all the systems and controls you’d typically find.”

He added that he believed those systems “probably would have stopped a lot of the misbehavior”. Ms. Holmes and Ramesh Balwani, the former chief operating officer of Theranos, were each recently sentenced to prison for defrauding investors and patients.

The idea that start-ups in particular do not fit into a flat structure was supported a 2021 study by Professor Lee of Wharton. A flat structure “can result in haphazard execution and commercial failure by overwhelming managers with the burden of leadership and causing subordinates to drift into power struggles and aimless explorations of ideas,” he wrote.

With those challenges in mind, some companies in 2023 believe that keeping hierarchy at bay is less important than challenging labor practices that put profit before ethics. For example, Dark Matter Laboratorya social non-profit organization, operates on the idea that the future of work is not about the financial needs of big bosses.

“In some ways I think we could be described as non-hierarchical, but internally we don’t describe ourselves as such,” said Annette Dhami, who works in organization and governance at Dark Matter Labs. “If we had to refer to it, we would call it a dynamic hierarchy.”

“We recognize that hierarchies exist,” she added. “But we don’t structure them in terms of bosses.”

Instead, they use virtual “role cards” that employees can choose, which indicate the responsibilities and duties they are responsible for. There are also “stewards” who predict the bigger picture but don’t manage teams.

Instead of removing hierarchy altogether, companies like Dark Matter are trying to use alternative structures that don’t focus on how conventionally productive employees can be.

So what about Ag Biome? In recent years, as it has grown from a small company to a larger company, it has brought an element of responsibility into its structure, which means that someone is responsible for every part of the company. Ag Biome has also made other structural shifts away from consensus.

But the underlying ambition to do things differently remains. In a ‘normal company’, decisions can be made quite easily by individuals; with a flat structure, “here you suddenly have to listen to all these people,” said Ms Claypoole. “But what I’d like to think is if you get a bunch of smart people together, hopefully that challenge will help take you to a better place.”