People Follow Structure: How Less Hierarchy Changes the Workforce
Shifting to self-managed teams and worker autonomy has been linked to greater engagement and performance. But not every employee likes the change.
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To what extent do changes in organizational structure influence employee decisions to join — or stay at — a company? Research found that when companies de-layer their hierarchies, their workforces change: Typically, these businesses see the share of conscientious, open, and agreeable employees rise, largely due to turnover. The outcome can vary, though, based on how managers communicate the goal of flattening the organizational structure and attend to high-potential employees makes a difference.
Managers today are attuned to current thinking that how companies are organized matters to their performance, so they frequently adjust the corporate structure in the interest of improving outcomes. But the effect those changes may have on the workforce itself is less well understood.
While research has shown that employees are a heterogeneous group and that attracting and retaining talent involves a mix of incentives, we know less about how various types of organizational structures appeal to different workers, and whether those structures bind them to their employer or make them want to leave.1
The more radical the changes that senior leadership intends to implement, the more critical this question becomes. Among the most dramatic transformations observed in the corporate landscape these days are moves from traditional, hierarchical organizing to working with flatter structures featuring fewer layers of command. These structures offer more autonomy but also impose burdens of self-organization on employees.2
Top management must think seriously about which structural changes to implement and which complementary measures to take to tailor the composition of their workforce to meet their needs. But first, they must have greater insight into how a shift from a hierarchical work structure to a more self-organized one may affect the composition of the workforce. They must understand what types of individuals will be newly drawn to the company, which ones will be likely to leave, and how individual case conditions may affect the outcome.
To develop some initial guidance for implementing a flatter structure, we conducted a large-scale empirical study using data from more than 5,500 companies in the U.S. financial services industry that had significantly de-layered their hierarchies from 2000 to 2022. We found that, on average, workforces feature a higher share of conscientious, agreeable, and open individuals a year after the company has de-layered its structure. We then conducted in-depth case studies with two affected companies to better understand what drives the differences between organizations.
Why ‘Structure Follows Strategy’ Is Too Simplistic
Many senior strategists agree with scholar Alfred Chandler’s influential dictum, dating to 1962, “Unless structure follows strategy, inefficiency results.”3 In practice, this means that a leader must consider their clients, offerings, and value delivery before they split up the work among their people.
References
1. A. Raman and E. Rosenblum, “Focus on Skills to Grow Your Workforce,” MIT Sloan Management Review, June 21, 2023, https://sloanreview.mit.edu.
2. L. Greer and F. Klotz, “Why Teams Still Need Leaders,” MIT Sloan Management Review 61, no. 1 (fall 2019): 15-17; and F. Laloux, “Reinventing Organizations: A Guide to Creating Organizations Inspired by the Next Stage of Human Consciousness” (Brussels: Nelson Parker, 2014).
3. A.D. Chandler, “Strategy and Structure: Chapters in the History of the Industrial Empire” (Cambridge, Massachusetts: MIT Press, 1962).
4. J.G. March and H.A. Simon, “Organizations” (Hoboken, New Jersey: John Wiley & Sons, 1958).
5. R. DeFillippi and M. Lehrer, “Temporary Modes of Project-Based Organization Within Evolving Organizational Forms: Insights From Oticon’s Experiment With the Spaghetti Organization,” in “Research in the Sociology of Organizations (Advances in Strategic Management, Vol. 28),” eds. L. Frederiksen, F. Täube, S. Ferriani, et al. (Leeds, England: Emerald Group Publishing, 2011), 61-82.
6. C. Cutter, “One CEO’s Radical Fix for Corporate Troubles: Purge the Bosses,” The Wall Street Journal, March 22, 2024, www.wsj.com.
7. M. Reitzig, “Get Better at Flatter: A Guide to Shaping and Leading Organizations With Less Hierarchy” (Cham, Switzerland: Palgrave Macmillan, 2022), chap. 4.
8. We also controlled for company performance, where such data is available, in a series of subsample tests. The results stayed constant.
9. We have no reason to believe that our results are driven by forced turnover (layoffs) or changes in individual salary. From further studies we conducted, we know that particularly conscientious and open employees voluntarily stay longer in flatter hierarchies, and vice versa.
10. Greer and Klotz, “Why Teams Still Need Leaders,” 15-17.
11. V. Boss, L. Dahlander, C. Ihl, et al., “Organizing Entrepreneurial Teams: A Field Experiment on Autonomy Over Choosing Teams and Ideas,” Organization Science 34, no. 6 (November-December 2023): 2097-2118.