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Tall and Flat Organizational Structure

A Comparative Paper
10/27/2012 MGT 201 Abordo, Joanne Diana, Emmalene Maroma, Ma. Angela Segura, Pearlesane

Tall and Flat Organizational Structure

Introduction

Organizational structure pertains to the way in which companies arrange their departments. Smaller companies tend to have flatter organizational structures with few management levels. Larger companies use tall organizational structures with many echelons of management and employees. Companies use several types of organizational structure for specific roles. Certain organizational structures come with different advantages and

disadvantages. Thus, considerations should be made before choosing a structure; there is no perfect formula because the nature of the company will determine what is best. Duplicating raw materials or job duties is wasteful and inefficient. That is why determining the structure of the organization early on is vital to the growth of the company, keeping in mind the needs of which. Organizational structure in a company also enhances the communication process, which in turn is important to decision making. Large companies with many managerial levels will be most effective when they communicate from top executives to bottom rank-and-file employees. On the contrary, smaller companies with a flat structure usually make quick decisions because there is not much managers input to consider. The size of a company is sometimes the determining factor as to organizational structure effectiveness. Discussions on the effectiveness and ineffectiveness of a Tall or Flat Organizational Structure to the kind of company will be the focus of this paper.

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Tall and Flat Organizational Structure

Problem
A company with a strong organizational structure benefits from improved communication, a well-defined hierarchy and the ability to create a unified company message. As efficient as organizational structure can be, it can also create problems that can lead to loss of productivity and internal conflict. A strong company framework need to identify suitable structure for their business. Factors such as company size, span of control, technology and tasks should be considered. The Harvard business historian Alfred Chandler observed that in the evolution of great American businesses, firms have created organizational forms appropriate to new strategies, thus Chandlers dictum: Structure follows strategy.

Organizational structure is important because managers coordinate and organize to implement strategies. The form of organization influences how labor, knowledge, and skills are allocated to tasks; establishes how information will be channeled; and, affects the efficiency and sentiment with which individuals perform. We tend to view organizing a matter of decision-making: we decide to arrange the people, jobs, and positions that we have available to meet managements needs. But, there are real constraints on the forms of organization available to us. Hospitals tend not to be structured like fast food restaurants, and banks are not organized like a manufacturing plant. The task (or type of work to be done), the technology (the way we know how to do something), and our knowledge of what has worked and what does not work influence and limit our choice of organizational design.

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Tall and Flat Organizational Structure

Objective

a. To define each organizational structure and their advantages and disadvantages b. To compare and contrast Tall and Flat Organizational Structure c. To present companies and corresponding ideal structures

Background

Tall Organizational Structure A tall organizational structure has multiple layers of management between the executives and the front line employees. The long chain of command runs from the top down. The larger the organization is, the taller the hierarchy grows and the more complex the movement of information between the layers becomes. However, tall structures rarely exceed 8 levels of management. This is firstly because the number of layers decreases the span of control. Secondly the disadvantages of the tall structure begin to outweigh the advantages of a tall structure. Tall organizational structure is one which has many levels of hierarchy. In these organizations, there are usually many managers, and each manager has a small span of control they are in charge of only a small group of people. Tall structures tend to be more complicated and complex, and may be slower to respond to market changes than organizations where managers have a larger span of control.

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Tall and Flat Organizational Structure This kind of structure results to a narrow span of control. Meaning, the employees under one manager will be considerably smaller compared to that of a structure with a wide span of control. There are many managers or divisions, but few subordinates each manager. Flat Organizational Structure In contrast to a tall organisation, a flat organisation will have relatively few layers or just one layer of management. This means that the chain of command from top to bottom is short and the span of control is wide. Span of control refers to the number of employees that each manager is responsible for. In this scenario, a manager has lots of employees reporting to them; span of control is said to be wide. Due to the small number of management layers, flat organisations are often small organisations. A flat organization, called organic structure. The flat pyramid is characteristic of organizations with low hierarchy. Less hierarchy with a larger number of employees per manager means that workers have more autonomy or freedom to perform their tasks. Control is sacrificed for creativity. Flat structures work well for small businesses or those with a small number of job roles. However, a business with a flat structure needs to ensure that each manager's span of control does not become too wide making it difficult to manage direct reports from numerous subordinates.

II. Discussion

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Tall and Flat Organizational Structure

FACTOR
Span Control of

TALL ORGANIZATION
Narrow Few Informal Good High management cost Distorted and complex Delayed Clear progression and promotion

FLAT ORGANIZATION
Wide Many Formal Not so good Less costly Less bureaucracy Fast Reduced opportunities

Subordinates Relationship Coordination Cost Communicatio n Decisionmaking Internal Growth

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Tall and Flat Organizational Structure External Growth Limited

In a narrow span of control, there are many management levels, each of which is responsible with few subordinates. That is why, an informal relationship between manager and subordinates may develop because personal relationship among the few employees belonging in a certain level is bound to happen. Unfortunately, collaboration between other levels may hinder growth. Due to numerous levels, misunderstanding between the levels may arise, and this issue can sometimes mean new ideas and innovations can never reach production. On the other hand, a wide span of control for a flat organizational structure entails many subordinates for a few managers or supervisors. Activities cannot be closely supervised by the manager, and mistakes and possibility of indiscipline are more likely to occur. There is also confusion in responsibilities of the subordinates because several managers may exist in one level and work may overlap. A flat organization will work well with a staff who needs less guidance and more independence. Managers require higher pay, and a flat organization can cut cost significantly, decrease employee turnover and increase profit margin. Communication is also fast and reliable in this kind of structure beacuse direct instructions are received from the manager. Decisions are made quickly beacuse there is not much levels for the assessment to go through, and approvals from few layers of authority can be easily received. A tall organization would be more organized because less people would be accountable to minor supervision. This helps the management stay in control without preventing any confusion in the roles. A large organization also usually consists of managers at every small level which would help in better communication between the

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Tall and Flat Organizational Structure employees and the authority. But decisions can take a very long time to reach the top executives. Internal growth of employees in the organizational ladder is clear and progressive. Employees see more levels to be promoted to, and they tend to feel a sense of security in their job. With the smaller span of control, employees seeking upward mobility know who their competition is. External growth is limited for flat structure to small organisations such as partnerships, co-operatives and private limited companies.

Difference of Flat and Tall Organization Structure Layers of Management The difference between tall and flat organizational structures is the layers of management. In a flat organizational structure, there may be just one top manager who is an owner or CEO of the company, overseeing a handful of other employees. In a tall organizational structure, there are multiple layers of authority between the CEO and low-level employees. For example, an entry-level employee may report to a supervisor, who reports to a manager, who reports to a director, who reports to a vice president, who, finally, reports to top management.

Employee Motivation Employee motivation is a key factor in any organizational structure. While employees in a flat organization may feel as though they have more direct influence on the company, they may also feel as though they have no room for advancement. On the other hand, employees at a tall organization have many layers through which

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Tall and Flat Organizational Structure to advance their careers, but may become frustrated at their relative lack of influence at lower levels within the company.

Organizational Complexity Generally, the more complex an organization becomes, the taller the organization must be. An employee in a small organization may be able to handle all the company's marketing duties; however, as the organization grows, that employee may need subordinates to whom he can delegate certain tasks. Additionally, top managers can generally be much more effective if they have a handful of upper-level managers reporting to them, as opposed to dozens or more of lower-level employees.

Flexibility One advantage a flat organizational structure has over a tall one is the level of flexibility. Decisions can often be made and carried out more quickly in flat structures because there are few layers of communication between the employees doing the work and those making the decisions. Therefore, directives and feedback can be communicated more quickly to allow for necessary changes.

Analysis Small businesses usually start out as flat organizations because the employees report directly to the owners. However, as these businesses grow, they tend to add management layers and become tall organizations. Government bureaucracies, including the military, have tall structures with multiple layers of management. A global company may have a tall structure with several management layers between the employees and the chief executive officer.

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Tall and Flat Organizational Structure

Organizational structure is a formal outline of the managerial reporting relationships inside a company. Tall organizational structures feature

numerous layers of management, cascading from the executive level all the way down to front-line management. Flat organizational structures feature less layers of management. In flat organizational structures, employees are empowered and expected to take responsibility for a range of traditionally managerial decisions in their daily routines.

FLAT ORGANIZATION
ADVANTAGES OF A FLAT ORGRANIZATION: 1. Cost Savings Since flat organizational structures feature fewer layers of management, flat organizations can incur smaller expenses on salaries. In addition, flat organizations often avoid granting salary raises and promotions for length of service, instead focusing their career development efforts on top performers. Granting promotions based on performance makes more sense cost-wise, since the higher-salary expense will be directly tied to greater productivity. Companies with flat organizational structures can outsource non-vital business functions to further reduce expenses. Outsourcing tax preparation, recruiting activities and IT functions, for example, can allow companies to operate lean by eliminating entire departments from their payrolls. Taking advantage of staffing agencies for temporary office help is another technique to keep a company lean and flat.

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Tall and Flat Organizational Structure 2. Adaptability Employees and work groups in flat organizations tend to be more adaptable in changing or unique circumstances, due to their smaller hierarchies and lack of bureaucracy. When front-line employees are empowered to handle customer complaints without management approval, for example, complaint resolution can progress more efficiently, boosting customer satisfaction. Work groups assigned to unique projects, for example, can often craft their own unique operational processes in flat organizations, without seeking the approval of upper management. 3. Collaboration Open communication and collaboration are encouraged in companies with flat organizational structures. Since more employees are on a level playing field, more responsibility is placed upon each individual, creating a situation where innovative, collaborative self-starters excel and passive followers lag behind. As an added bonus, organizations with a flat structure can attract the type of employees who are encouraged by a work structure that requires self-motivation and teamwork. 4. Innovation and Creativity Ideas come from a wider range of sources in a flat organizational structure than in companies with many layers of management. By giving everyone in a company an equal voice in submitting new ideas and feedback on operational processes, products, services, business models and company policies, companies can discover new ideas that may lead to competitive success.

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Tall and Flat Organizational Structure

DISADVANTAGES OF A FLAT ORGANIZATION Employees in flat structures may have multiple bosses, which can lead to role conflict. For example, one marketing manager may want to advertise more online while another prefers direct mail. These divergent goals may confuse and frustrate the subordinate employee. A flat organizational structure may also hinder a company's growth. Moreover, companies with tall organizational structures are less adaptable to change. One procedural change can be expensive and effect thousands of employees. Decision making may also be extremely slow in a tall organizational structure.
Flat Structure Pros And Cons Flat organizations offer more opportunities for employees to excel while promoting the larger business vision. That is, there are more people at the top of each level. For flat structures to work, leaders must share research and information instead of hoarding it. If they can manage to be open, tolerant and even vulnerable, leaders excel in this environment. Flatter structures are flexible and better able to adapt to changes. Faster communication makes for quicker decisions, but managers may end up with a heavier workload. Instead of the military style of tall structures, flat organizations lean toward a more democratic style. The heavy managerial workload and large number of employees reporting to each boss sometimes results in confusion over roles. Bosses must be team leaders who generate ideas and help others make decisions. When too many people report to a single manager, his job becomes impossible. Employees often worry that others manipulate the system

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Tall and Flat Organizational Structure behind their backs by reporting to the boss; in a flat organization, that means more employees distrusting higher levels of authority.

TALL ORGANIZATION ADVANTAGES OF A TALL ORGANIZATION


1. Authority is Obvious In a hierarchical structure, the ladder ascends to a top authority figure. Within the ladder are departments with clear roles and managers. With this type of vertical structure, employees know whom to report to with problems. In a very small business, you may have only a couple of employees at each level -- a tiny weekly newspaper, for example, might have two advertising agents running the advertising department. The editorial department might have two reporters and a page designer, also at the bottom of the hierarchy. An editor manages the editorial staff. A publisher manages the editor and advertising department; the company owner manages the publisher. Each employee seeks guidance from the supervisor directly above them. 2. Managers are Skilled in Specific Area You'll be able to hire managers at each level who are skilled in the department's specific function. In other types of organizations, you might have a manager who oversees workers with many functions. The manager might have a basic knowledge of each function, but not an in-depth understanding. Managers knowledgeable in a specialized area can guide employees to advanced levels. They can train your

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Tall and Flat Organizational Structure employees in software, programs, machinery and other skills necessary to perform their jobs well. They can hold department-based meetings that foster personal development. Employees who feel confidence in their managers' competence will want to learn from them. In this way, your managers build a strong department that can improve the success of your entire organization. 3. Clear Promotional Pathway Your employees know where to go when it comes to promotion; they can clearly see the next step up the ladder in your organization. In a hierarchical structure, your employees know where the path leads and where it ends. They might be motivated to move onto the next position, whether it's into a managerial role or a new department. 4. Departmental Loyalty Departments working to fill a common role form a sense of camaraderie. As your employees work to fill a specific role in the organization, they form bonds with those contributing toward the same outcome. In "Organizational Communication in an Age of Globalization," the authors note that departments have specific jargon, and the shared language binds people in that division. Employees in a department can relate to one another as they face similar challenges and reflect on shared experiences. In organizations without departmental or hierarchical structures, employees still form bonds as they fill a common goal for the organization. At the same time, they lack the bond that comes from working daily with others who share a detailed understanding of their specific roles. DISADVANTAGES OF A TALL ORGANIZATION

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Tall and Flat Organizational Structure 1. Slow Decision-Making Decision-making is usually slow in tall structures because of centralized decisionmaking. For example, a product engineer at a small business could talk to the owner directly about a design decision. However, the engineer may have to get the same design approved by department managers and division heads before it gets to the chief executive officer. This delay reduces operational flexibility, which could mean losing out to agile competitors. Tall structures cannot respond quickly to the competition because several management layers could be involved in the decisionmaking process. 2. Higher Costs Tall structures usually mean higher compensation and administrative costs for the different management layers. This additional management overhead reduces net income and cash flow. During economic downturns, sharp drops in revenue could mean negative cash flow, which could require significant restructuring. Tall structures could also increase downsizing costs because of the severance payments for the laidoff managers and their administrative staff. By controlling overhead costs, flat organizations can adapt quickly to deteriorating business conditions and emerge stronger when conditions improve. 3. Hampers Innovation Tall structures could hamper innovation because the people closest to the end users do not make resource allocation and design decisions. For example, if a Latin American business unit requests a design change to respond to its local competition, the head office might refuse the change request to avoid the additional development and manufacturing costs. However, this refusal could lead to the company losing its

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Tall and Flat Organizational Structure competitive edge in an important overseas market, which could result in long-term revenue losses. In a flat structure, the Latin American business unit manager would have the authority to approve the design change and authorize the additional implementation expenses.

Tall Structure Pros And Cons The pros of tall structures lie in clarity and managerial control. The narrow span of control allows for close supervision of employees. Tall structures provide a clear, distinct layers with obvious lines of responsibility and control and a clear promotion structure. Challenges begin when a structure gets too tall. Communication begins to take too long to travel through all the levels. These communication problems hamper decision-making and hinder progress. Example of companies with tall and flat organization structure Coca Cola Company, for one, employs a tall organizational structure. It has 2 operating groups namely Bottling Investments and Corporate and operating groups in almost all continents. Decisions were made on a local basis to address the fast-paced market demand and change. This structure allowed each division to specifically design advertisements in each locality. Central decisions like finance, innovation, strategy and similar others, on the other hand, are situated at the corporate division. In 2004, Neville Isdell the CEO and chairman of The Coca-Cola Company, began to incorporate more complex integrating mechanisms in order to respond to the organization's extremely low growth rate. Face-to-face meetings with top managers, the use of intranet and other complex integrating mechanisms were regularly done to keep it updated. Mutual adjustment and responsiveness have become major players in increasing the growth rates and positive return on equity for stockholders. On the other hand, due to its tall structure, the organization experienced communication problems because of unclear goals and motivation problems. Based on information from Report 2006 this span of control seems somewhat slim for the CEO of such a large organization. The CEO is also a member of the Senior [Type text] Page 16

Tall and Flat Organizational Structure Leadership Team. This team consists of each head of the eight operating groups aforementioned, and also has other top executives in areas like innovation and technology and marketing. Although there are only six people that answer directly to the CEO, the CEO is able to receive input from a wide variety of divisions because of this leadership team. Since the team is comprised of members from various divisions, the CEO is able to obtain a wide variety of information. The move to decentralization has caused structural changes for The Coca-Cola Company. New offices have been opened to facilitate decisions being made closer to the local markets. The organization has also undergone centralization of some of the companys departments. In 2006, the Bottling Investments division was created to establish internal organization for our consolidated bottling operations and our unconsolidated bottling investments. It appears that the organization is striving for a hybrid structure, which allows them to have advantages of both mechanistic and organic structures, while trying to minimize the negative consequences of each. The strategic structural changes that the organization has gone through in recent years have created a much needed positive impact on the company. Sales growth increased and employees are much more satisfied. The organization is trying to create a more innovative culture by pushing towards decentralization. Companies with flat organizational structure Managements which do not control, but only monitor, need the trust of workers, especially when staff are geographically dispersed and there is little face-to-face contact. Steering companies through today's fluid markets is like navigating in a fog. Flat company structures are well matched to these conditions. One of the hardest tasks for managements today is to oversee the transition of oldline companies venturing into the new technology e-commerce space. Take General Electric. Before Jack Welch took over as chief executive, GE was the archtype of the top-down, command-and-control structured company. Welch remade it, finding a way to re-design its structure so that its divisions ran as small entrepreneurial units. One of his techniques was to introduce the term "boundaryless management". This was a direct and persistent attack on the company's traditional vertical structure. Motorola, before restructuring had 12 layers of management. After restructuring, it had considerably fewer. Its management payroll shrank. By proceeding cautiously, it [Type text] Page 17

Tall and Flat Organizational Structure managed its transition in a way that protected the company's reputation as a good employer. Edward Jones, the US stockbroker, moved to make itself a flat company by structuring as a confederation of autonomous entrepreneurial units bound together by a highly centralised core of values and services. The company today is a network of brokers, each of whom works from a wired office. In response to intensifying global competition, almost all large companies in even the most traditional industries should consider following in the footsteps of GE, Motorola and Edward Jones. Conclusion An organizational structure is only effective when the entire company uses it properly, when Flat and Tall structure creates departmental goals for the rest of the company without first consulting with the managers of different departments, the company runs the risk of not making its goals. In order for an organizational structure to be effective, goal-making needs to be a two-way process. When upper management does not seek the input of the rest of the company to create company goals, then resentment can set in and morale begins to drop. Effective communication is required to keep an organizational structure running smoothly. Without communication, new ideas and processes can get confused. Managers may begin to redouble efforts in an attempt to claim certain parts of a process as their own. This is why executive communication to the rest of the company is critical to the success of any organizational structure, Flat or Tall. If departments are not clear on exactly what their responsibilities are, then the ensuing confusion can slow production down.

Considerations Tall organizations tend to centralize decisions, while flat organizations favor decentralized decision-making. However, nothing prevents a company from using both, depending on the circumstances. A company could use decentralization to spur innovation and centralization to resolve conflicts. Centralized decision-making is necessary when a company has a few people capable of making good decisions. [Type text] Page 18

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Recommendation Organizations are unlikely to remain the same year after year. The business may be growing in size or it may have to reduce its operations. Companies must always secure its sustainable development by constantly restructuring the organization. Growth continually drives the longevity of the company. When theres growth, more staffs are employed by the organization, thus new departments may need to be created. On the contrary, the organization might have to make cut backs without reducing output. Some staffs may be redundant while others will find themselves with increased responsibilities. Delayering the organization removes certain levels of management. This results in managers having wider spans of control and the organization having a flatter structure. These restructuring processes would pose reduction in costs (staffing costs, general running costs (Delayering & Downsizing). Also, these would make the organization become more efficient and improve its communication through delayering. However, it is also deemed important to take into account the staff morale as the new staffs may not like the new structure and the cost of restructuring associated with moving to new departments. Companies are reconciled to the fact that today's business environment generates more and higher risk. One of the biggest risks facing managements is restructuring. To do nothing is a risk in itself. To be effective leaders should aim to encourage outof-the-box and contrarian thinking, cultural dexterity, knowledge sharing and the diffusion of ideas.

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Tall and Flat Organizational Structure "Organizational Issues." Organizational Issues. N.p., n.d. Web. 26 Oct. 2012. <http://www.mgmtguru.com/mgt499/TN7.htm>. "The Difference Between Tall & Flat Organizational Structure." Small Business. N.p., n.d. Web. 26 Oct. 2012. <http://smallbusiness.chron.com/differencebetween-tall-flat-organizational-structure-23345.html>. "Tall Vs. Flat Organizational Structure." Small Business. N.p., n.d. Web. 26 Oct. 2012. <http://smallbusiness.chron.com/tall-vs-flat-organizational-structure283.html>. "Standard Grade Administration - Organisational Structure." Standard Grade Administration - Organisational Structure. N.p., n.d. Web. 26 Oct. 2012. <http://www.slideshare.net/BusEd/organisational-structure>. Musicalmood. "Organizational Structure of The Coca-Cola Company." Scribd. N.p., n.d. Web. 26 Oct. 2012. <http://www.scribd.com/doc/37483762/Organizational-Structure-of-TheCoca-Cola-Company>.

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