Part one – The traditional pyramid organizational structure
When I was in college (10 years ago!) studying information technology and business one of the hot topics was how information technologies would flatten the pyramid organizational chart of many businesses. Ten years later after graduating and participating in management in several organizations as a corporate citizen of the of the business world I can say that I’ve seen little progress. Many organizations seemingly have invested in new technologies only to primarily use email systems to communicate with most of the information moving from top down with the majority of the decision support technology being leveraged at the top of organizations and not the bottom.
Traditional businesses are built upon a pyramid structure of management that works on a one to many relationship between the highest level leader / manager or the organization and and his subordinate managers that handle employees and customers. Here’s a brief story showing how this works.
Our entrepreneur Joe starts out with a vision to sell widgets to the world (or at least his home town). He begins selling and becomes so successful that he must hire employees to help. At this point Joe has to step back from dealing with customers directly and begin dealing with his employees if he wants to be successful. Joe must devote some of his time to managing his people. If he is successful at instilling his vision, methods, and purpose into the people he has hired then his business will continue to grow.
Now lets say that Joe is very successful and must hire or contract 30 people to handle the day in day out operations of his business. Obviously Joe cannot deal directly with customers like he used to and probably spends most of his time coaching, training, and counseling his people on to success. He has created a small pyramid structure where each employee or contractor reports to him. Joe’s business expands and he opens a branch in another town. He can’t be in both places at the same time so he has to hire another person to help manage. The new person starts out with several employees and Joe’s plan, vision, and methods for selling widgets.
Joe now has two pyramids to handle, the one he is directly involved in and the remote location. This is the small business model. As Joe continues down the road to success he continually adds more pyramids to his organization eventually creating units that handle marketing, legal issues, human resources, procurement, and financials. By now Joe’s reached the point where there is no way he can run his original unit and properly motivate, inspire, and lead all the others so he hires another manager to handle his unit and spend all of his time now overseeing all the units.
Sounds complicated? Well it really isn’t if Joe’s done some smart hiring but Joe does have quite an infrastructure of of people in place and a weekly obligation to do a set amount of sales in order to pay them all. Joe’s done a great job of scaling up his business but the way he’s done it doesn’t leave him any room for scaling down. Also, Joe is out of touch with his consumers now because he doesn’t get to deal with them directly so he can’t read market demands like he used to so he has to rely on the people he’s hired or contracted to get this information for him. Joe’s business model probably looks like the picture below.
Joe's business organizational chart
As you can see Joe’s continuing success is placing him further and further way from his customers while his ability to make decisions that affect the outcome of the business has grown in proportion to its scale. Joe’s answer to this problem would typically be to saturate his decision making process with inputs from the managers he’s hired and empower them to make some of these decisions. He might occasionally drop in on departments or operations to see what is going on and attempt to get a better perspective of the needs of the business by talking directly to employees that deal with suppliers and customers, but for the most part he’ll be plugged into the network he’s built and be removed from the front lines of the business. These are the effects of the traditional pyramid structure of business.
- Inherently allows for growth in the scaling of business.
- Allows for intuitive growth of business
- Authority and areas of responsibility clearly defined.
- Clearly defined path for promotions and reward within the organization.
- Internal units can create group cohesiveness, camaraderie and loyalties.
- Leadership is removed from front-line supplier, customer, and prospect interaction and may lack responsiveness.
- Leadership must rely on subordinate sub leaders to supply information and analysis.
- Top level decision making can be skewed by group thinking, the overriding desire for consensus, and group politics which do not reflect the businesses actual needs.
- Front-line employee’s may have limited decision making ability and lack the ability to properly engage the customer or prospect.
- Innovation may be stifled by top down communication.
In our next article we’ll discuss an alternative structure that could be used to improve responsiveness and innovation through networking.