What is the right organization structure for the 21st century?
Published on January 15, 2020
Whether you work for a tech startup, a small business or a giant multinational, organizational structure is so foundational we often take it for granted.
Whether you work for a tech startup, a small business or a giant multinational, organizational structure is so foundational we often take it for granted.
Structure doesn’t only allow an organization to run smoothly; it also helps prescribe how an organization runs. In fact, organizational structure can help dictate culture, values, and success.
“Structure is actually one of the most important components of a company,” Louis Carter, founder and CEO of the Best Practice Institute and author of In Great Company: How to Spark Peak Performance By Creating an Emotionally Connected Workplace, tells Dropbox. “When a company implements the right structure, key goals and key results ensue. Structure also helps create culture, and when the culture is such that people love being together in the workplace, incredible things happen.”
As big business boomed in the 20th century and corporate best-practices began to congeal, a type of organizational structure emerged that we’ve all become accustomed to throughout our careers—the traditional hierarchal model. You know the kind—the all-powerful founder, CEO or managing director builds a team around themselves; that team hires managers to lead various lines of business and those managers hire individual contributors to carry out everyday tasks.
Sound familiar? Chances are you’ve worked at a company with that exact structure in place. The chances are even greater that your parents did, and greater yet that their parents did.
But as society, technology, and culture have evolved, so too have the possibilities—and requirements—for how to structure a company. Knowledge work in the 21st century has become far more fluid and interdependent, and its proliferation over the last two decades may require new organizational structures. Adopting the right structure not only reflects and reifies a company’s values, it can make or break its success.
A brief history of organizational structure
An organization can be defined as an entity comprising multiple people working towards a common goal, linked to an external environment. Organizational structure, then, is a visual diagram of an organization that describes what individuals do, whom they report to, and how decisions are made.
Imagine a bee colony, which can consist of up to 80,000 bees. The pristine, precise octagonal lattice work of its honeycomb hive, wealth of golden nectar, and survival of each bee depends on the structure, coordination, and communication within the colony. Queen, worker, drone: each bee has clearly defined role.
“How you draw up your company in terms of boxes and lines actualizes your strategy, mission, goal, and the lifeblood of your company."—Deepak Lalwani
Bees use pheromones, imperceptible chemical signals, and “dances” to communicate. Body composition and age determine roles and hierarchies. Likewise, most businesses delineate roles, titles, and communication channels to divvy responsibilities and power structures, and to keep the organization afloat.
“How you draw up your company in terms of boxes and lines actualizes your strategy, mission, goal, and the lifeblood of your company,” Deepak Lalwani, a management consultant whose firm specializes in change management and business transformations, tells Dropbox.
Throughout most of corporate history, the king of organizational structure has been hierarchical. Pseudo-Dionyius the Areopafite introduced the hierarchy in the late 5th century to depict the three orders of the angels. Found in the angelology of various religions, the hierarchy of angels ranked the supernatural beings into three levels with different degrees of power and authority.
While some degree of ranking existed within ancient Greek military ranks, a formal hierarchical model was first adopted by the Roman military as away to show chain of command, and is still pervasive throughout modern militaries and most organizations today. In the business setting, employees are departmentalized, and everyone reports to a manager. Power flows up, and communication trickles down.
“We were in the agricultural age for 10,000 years,” Jeff Deckman, founder and CEO of the Successful Transition Planning Institute and author of “Developing the Conscious Leadership Mindset for the 21st Century tells Dropbox. “And then we shifted into the industrial age and to a paramilitary structure. That was fortified by the first two generations of the 20th century going through military leadership training, which was very top-down. Then those folks came out and built the largest mega-corporations the world has ever seen.”
Indeed, the two World Wars influenced consecutive generations of young Americans entering the workforce during the middle of the 20th century. And we still feel those effects today.
“We had a hundred years of command-and control-leadership models and it worked well in the industrial age,” Deckman tells Dropbox. “But technology has just changed the rate of disruption and the need to be agile so much that complexity and speed break down structure.”
The digital revolution over the past 30 years and the proliferation of freelance and remote work has vastly changed the very nature of work. Rather than optimizing for repeating tasks over and over, many modern firms need to facilitate the flow of information, and, thus, must maximize efficiency through keeping their employees happy and engaged.
The digital revolution over the past 30 years and the proliferation of freelance and remote work has vastly changed the very nature of work.
“There's a mathematical calculation between increased employee engagement and increased profits,” Deckman says. “In the industrial age, there was a hyper-focus on financial capital. However, money doesn't make money any more than money loses money. People do both. Traditionally, when you looked at a balance sheet and you looked at the finances of a company, human capital was seen as an expense. It was treated as a bad thing when in actuality it is the most vibrant resource the company has because without the people going in there and doing what they're doing, the most expensive machines in the world sit there doing nothing.”
This shift in focus and outputs means that traditional organizational structures are no longer the only option. And many startups — and even some larger institutions— have begun to adopt different frameworks.
Innumerable organizational structures now provide alternatives to the traditional model that may be a better fit with modern knowledge work . The general “modern” structure is without boundaries, and places a heavy focus on networking and collaborating. Here are three of the newer structures most commonly incorporated by innovative companies today:
Flat, or self-managed, structures have no hierarchy, give no job titles and grant no seniority. Open channels of communication across the company allow employees instead to see all ongoing projects and join whichever they choose. If an individual wants to embark on a new project, it’s often up to them to secure funding and a project team.
California-based tomato-producing giant Morning Star Company, founded in 1970, is one of the oldest firms to operate out of a flat organizational structure. Critics argue that can sometimes lead to the creation of informal hierarchies based more on seniority than job duties. At their worst, these hierarchies can resemble high-school cliques, which can make communication and coordination difficult.
These challenges render flat structures hard for larger companies to implement. For existing hierarchical companies, switching to a flat structure requires a massive overhaul of vision, culture, roles, and communication channels—to name a few aspects to consider. Flat structures tend to work best for startups, though challenges may arise as the need for oversight and delegation increase as a company grows.
Coined by Jacob Morgan, author of The Future of Work, “flatter” structures open up lines of communication and collaboration while also stripping layers within the organization. This model is by far the most widely adopted today, and is the one Morgan expects to grow the most. Managers understand that they exist to support employees, not vice versa. Flatter structures require a “central nervous system,” allowing employees to access anything from anywhere at any time. They also necessitate an understanding by executives and managers that employees do not need to work at your company; they should want to work there. And everything should be designed around that principle as a result. And finally, people within flatter structures accept the way we work is changing. They are comfortable with flexible work arrangements, and eschew annual employee reviews and other laborious aspects of working.
Cisco, Whirlpool, and Pandora have all adopted flatter structures. At Cisco, employees can work from anywhere, whenever. Outside of its executive team, Whirlpool does not use traditional job titles. Instead, employees fit into one of four types of leadership roles, and anyone can contribute to the company’s robust innovation program. Pandora devotes an entire team to work on the employee experience, which accounts for everything from the value of individuals to the ways people work to the physical work environment. This team works in addition to the HR department, which takes the goal of creating a positive employee experience one step further by striving to create an environment where every employee can be themselves and be as unique as each member of its personalized radio audience.
Holacratic structures are composed of teams which can be brought together and dissolved quickly to meet organizational goals. As a form of self-management a holacracy’s decision power resides in these fluid teams, or “circles,” which helps to disperse power throughout the organization. Rather than a formal hierarchy, these teams have a set of simple, explicit, and public rules that dictate how work gets done. If anyone has an issue with a current process, they can raise and resolve them at regular group meetings. The aim of a holacracy is to distribute decision making while enabling everyone to work on what they do best. Holacracies still possess some structure and hierarchy, but it's based more on circles and what people think of as departments rather than on people. Zappos and Medium have been two of the most visible adopters of the holacratic method.
Zappos was the largest company to switch to a holacratic structure when the online shoe and clothing retailer transitioned in January, 2014. While some employees complained about how learning “shiny buzzwords” did not translate into a tangible difference how they conducted work, others felt the management style enabled them to make the best use of their talents. Employees can resign from one circle and float around for a while until they join another. Only about five people within the 1,600 employee company have the authority to fire someone.
Zappos CEO Tony Hsieh, likes to equate a holacracy to a city: “Cities have stood the test of time.” he said during a 2016 Q&A at The Wharton School of the University of Pennsylvania. “They’re self-organized; the mayor of the city doesn’t actually tell its residents what to do, where to live. They’re resilient.
What’s the “right” org structure for you?
Finding the “right” organizational structure for you and for your company depends on your individual values, work ethic, and culture, and your company’s values and goals. Emerging companies, which are not as bogged down by bureaucracy and tradition, have more leeway.
Companies that opened their doors 50 or 150 years ago are more set in their ways, and for good reason. But some can benefit from slowly adopting certain elements of modern structures.
“I believe that the traditional model has to be mixed with the newer, modern holacracies,” says the Best Practice Institute’s Carter.
Contemporary businesses are facing a new generation of workers who do not want to work in a hierarchy.
Companies worried about stagnation or looking to boost innovation do not have to completely restructure in order to incorporate the philosophies of these newer structures into their organization — they can cherry-pick elements of various structures that work best with them.
When an international energy and utilities company with almost 30,000 employees was struggling with with key business issues, including customer service, cutting costs, and building a stronger customer foundation to support growth, they turned to Lalwani's consultancy for help. Recognizing some structural inefficiencies, Lalwani's team redesigned the company’s customer organization by eliminating many of the managerial roles and restructuring 3,000 employees in total. These cherry-picked changes ended up saving the company somewhere between $4 and $7 million, and improved customer satisfaction.
Adapting to the 21st Century
In order for contemporary organizations to thrive, leadership must be willing to critically assess whether their company’s structure aligns with its values and goals. This form of big-picture internal assessment often goes overlooked. Changing the tides is hard work.
While the hierarchal model enabled industrial-age companies to thrive, the rise of the information economy has rendered this model harder to optimize. In factories, knowledge and intellect is concentrated at the top. Actual production, in contrast, requires little thought and massive coordination and repetition. Knowledge-based organizations, by contrast, require each employee to be enabled to think, communicate, and work at their best.
“We're literally in a historic period of human civilization,” Deckman tells Dropbox. “And I don't say that lightly, because anytime a civilization or culture shifts into a new age, everything changes.”
Contemporary businesses are facing a new generation of workers who do not want to work in a hierarchy. The flow of knowledge required in successful businesses simply doesn’t align with the slow, restrictive style that hierarchies necessitate. Research shows that the high capacity of data processing and information in the typical modern company requires explorative and exploitative business models. While it was once sufficient for structure to follow strategy, now process follows proposition. Deckman foresees more of a “communication, collaboration, and facilitation” mode of conducting business in which leadership asks employees for the input and empowers them to help move the organization in the right direction.
Even some within the iron-clad structure of the military are rethinking its impenetrable framework.
Major Kevin Deibler, commander of the 689th Network Operations Squadron of the U.S. Air Force says today’s military rank structure is “centuries” old and “not suited for our modern conflicts.”
Deibler wrote his doctoral dissertation on the underlying structural problems of the military after witnessing its shortcomings on tactical, operational, and strategic levels. He says forces could incur significant losses on the battlefield and in the cyber arena if structural changes are not made to the current system.
Changing structure is not easy for any organization. There is a lag between technical reality and culture. To catch culture up, we must reframe the challenges of adapting to the 21st century as an opportunity.
Some experts go so far as to advocate for eliminating all titles within an organization, though critics wonder how employees could advance their young careers without an external step ladder of success. But Carter says eliminating titles will also help break down employees’ glass ceilings. Without parameters defining their jurisdictions and authority, they can assume more responsibility and boost their level of involvement in projects.
Lalwani, who has restructured companies from as small as six people to as large as 30,000, says the goal is always the same: to align structure with purpose and capabilities.
“Aligning an organization’s structure with its goals takes a lot of time and energy and effort,” Lalwani tells Dropbox. “Organizations must be designed to reflect not only their strategy, their values and their philosophy, but where they will need to be to achieve a competitive advantage in the future.”
Whether within the traditional organizational framework or not, the evolving work landscape of the 21st century demands we move past business as usual.