Decisions and Flat Organizations

Recent years have seen a movement towards flat organization structures. One of the reasons that this occurs, is that decision making in flat organizations is often better than hierarchical organization for the following reasons:

1. Its hard to get good decisions made within a reasonable period, if the information required to make good decisions is complex and difficult to make sense of. The domain experts are usually better qualified to make a decision in complex domains.
2. The decision maker is highly motivated to successfully implement a decision. As decisions pass down a chain of command, motivation decreases.
3. Decisions traveling down a long chain of command are often not clearly communicated. The shorter the gap between the decision maker, and the implementors, the more likely the decision will be communicated clearly.

Complex and fast moving environments in particular, require flat organizations. Firms in the technology and Internet markets are prime examples. The speed and quality of decision making in these markets has consequences which are large and immediate. Hierarchical organizations will simply fail against organizations where decisions are made by the front line experts who have the knowledge to make decisions quickly. This is one reason startups do so well in these markets.

When someone is responsible for both making and implementing a decision, their motivation is very strong. Its not necessary to offer many extrinsic rewards, the individual is self motivating. This is the reason it is wise to let people make their own decisions as much as possible. This implies as few management layers as possible.

When decisions are made, the decisions are communicated in two ways: overtly through instructions and covertly through incentives. There are a couple of issues here. Most companies and their managers fail miserably at telling their employees what they want. Most employees end up guessing what they should do. The real motivators are pay incentives and potential promotions. However, actual incentives don't always line up with the intent of the decision. Incentive schemes can be 'gamed' or manipulated to get the rewards without fulfilling the intent behind the incentive. Stock options for executives are a prime example. Boards were trying to motivate executives to increase long term shareholder value, but CEOs ending up increasing the short term stock market price instead.

This is quite a deep and complex topic, which can't be covered in such a brief note. More, in future posts.