Flattening the organisation.


A second generation owner took over the reins of a company from his aging father as the MD (managing director). The youngster was earnest and eager to ‘professionalise’. He had learnt that a flat structure was the best organisation type. What a coup it would be to kill two birds with one stone; to reduce costs and simultaneously employ fewer people. 

People were dismissed, retired or coerced to leave.  Many people classified as 'flab' by the new boss were soon history.

Lo and behold! Soon after this initiative, payroll costs went down and productivity went up as the fearful employees were working harder to avoid their head being on the chopping block. About two years after the bloodbath began, there was a crisis. The company was in dire straits. 

Sales, quality and profitability had all plummeted along with morale. Customers were not being served and there was a pall of gloom overshadowing the organisation. Many people had fled the organisation. In a growing economy there were many jobs to be had elsewhere.

The boastful young owner's pleasure had ironically turned to panic. Barring a few cronies, the MD had no one he could trust and no one trusted him. He tried many things but every action only made the situation worse.

Normally organisations are living organisms and therefore they are dynamic in nature, hence there is a need for constant monitoring and dialogue between people and teams to keep the ship on an even keel and on course. When communication is only a monologue instead of a dialogue all sorts of problems arise and worse is they go unreported and hence unresolved. 

We were invited by the MD to help salvage the situation. This action of bringing in someone from the outside always raises eyebrows. How can an outsider who has little expertise of the business or its people evolve a solution?

People will talk more openly with a stranger than with people close to them often revealing startling information on causes of problems and possible solutions.

An outsider does what many managements ought to do but don’t.  They initiate dialogue and bring out the real issues and using that information coupled with their own expertise consultants provide solutions.  

Many traditional organisations worked in a command and control manner. They issue instructions downwards and try to receive feedback from below, one level at a time.

Traditionally most organisations follow a management structure which is in the form of a pyramid. There is a leader at the very peak supported by a handful of senior people . These people in turn have several people reporting to them and they are in turn assisted by supervisors and so on until a junior level who finally manage the mass of employees who actually perform the work.

Over time as organisations grow there is a natural tendency for the number of management levels to increase. Companies like General Motors, which at one time was the largest company in the world had 32 levels of management. When this happens there are distortions in communications both vertically and horizontally and this eventually affects performance adversely.

As any engineer will tell you that each level reduces signal strength by half and doubles the noise. Communication distortions take place at every level, resulting in sluggish organisations, high costs and outcomes quite different from those planned for or desired. This could explain why many formerly great organisations eventually failed.

There is no doubt that an organisation should be as flat as possible but is limited by a factor called the span of control. This is the desirable number of reportees/ subordinate that people at each level in the structure can manage and support effectively. The span of control reduces as one rises in the organisation and in the type of organisation. Traditionally at the lowest level 32 is considered highest and at the top 4 is considered desirable. The span of control changes depending on type of organisation and nature of work. 

In flattening the organisation many levels of management are removed and the communication is greatly improved, at least in theory.

Innovations in technology and management practices such as smaller self managed groups the span of control can be enlarged from control to more of facilitating requiring less command and control.

Many leaders often find to their despair that merely flattening organisations by merely shaving of layers is a definite way of getting into trouble.

To flatten the organisation, work and processes need to be mapped, analysed and redesigned. People have to be trained because of the resulting changes in style, technological and management innovations.

 This permits each individual in the organisation to achieve much more for less effort in a shorter time period.

Back to the client.

 Before we arrived on the scene, performance had nosedived, morale was at its lowest and several good and competent people who had been with the organisation a long time had quit the organisation leaving huge gaps in management structure. Many positions some of which were critical to the organisation's survival were lying vacant.

We met with several employees at different levels. It was obvious but there was a huge disconnect between the owner/top management and the employees. They viewed the top management with suspicion and had started in indulging in behaviour which was hampering the capability of the organisation to function properly.

Information one of the most powerful of resources within an organisation was now being hoarded and not being shared. The company had been split up into small feuding blocks each protecting its own turf and its members. Initiative was completely missing.

Analysis led to the conclusion that;
  • Knowledge and key information resided in the minds of the individuals and not with the organisation. When the people were kicked out key pieces of vital knowledge was lost.
  • When the number of members in middle management were greatly minimised much of the work and responsibility was arbitrarily assigned to other people , many of them too junior, ill equipped and not competent to take on the responsibility. Most of the important work such as quality and cost related were also pushed down without preparing the juniors appropriately to handle them.
  • The employees felt unappreciated, greatly overworked and highly stressed, this inhibited their ability to perform their jobs.
  • Suspicion of colleagues and other employees resulted in poor co-ordination and not enough information sharing, this hampered the organisation's ability to get what it needed from their employees.
  • Subtle sabotage and non co-operation by employees were the norm so as to make sure that they became indispensable.

Fear is the fastest way to bring about change but it is normally short lived and highly reversible. Sure some amount of shock treatment is necessary to bring people out of their stupor.

The question is why was complacency allowed to settle in the first place? Fear should represent no more than 5 to 10% of the managers toolbox. Excessive fear leads to paralysis of action.

The biggest hurdle in any management initiative is credibility of management. Only when managements have credibility will the employees give their unconditional support . In this case the management which had rather weak credibility had all but lost it completely. 

It is important to note that people may not like a decision but will be more willing to accept it if they have been consulted and made to feel that they were part of the decision making.

Acting on our advice, the MD and his top team started engaging the employees and sought to explain their rationale for their actions. The bosses grudgingly accepted the harsh criticism of the employees. When the employees had emptied themselves of all their frustration and rage, the question arose as what to do next?

The management made promises to remedy the situation and acted upon them in participation with several employees across the organisation.

Within six months the tide turned and within two years the company returned to healthy profits. 

The organisation structure was permanently flattened to four levels with good success. The difference was that technological and managerial innovations were introduced along with manpower optimization. Based on Work and responsibility was redesigned and reassigned. Necessary training needs were identified and implemented.

The results were nothing short of phenomenal;
  • Reduced managerial staff (each employee on an average did what was previously done by two to three employees)
  • Increased productivity and output
  • Higher salaries for employees
  • Lower employee costs as a percentage of cost of operations
  • Greater employee pride in themselves, their work and in their organisation.

The client and now a friend went on to greater success because he had learnt to engage and tap his greatest asset his people.
  • If you want to succeed in the short run then use fear and drive people ruthlessly if necessary.
  • If you want to succeed in the long run then it is important that you engage and lead people.
  • If you want to build a great organisation particularly.where knowledge, and skills are crucial then you must facilitate people and teams.