Adapting to a Flatter Organization

The hierarchical model of business adopted from the military is quickly following the way of fighting in close ranks. Today’s organizations are growing flatter as faith in the managerial hierarchy is being replaced by faith in individuals’ supervising themselves. Throughout the 1980s, large corporations by the score saw the distance between the CEO and frontline supervisors reduced from twelve or more managerial levels to six or fewer. Some experts say that the trend will continue and that, in the 199ss, 40% of all middle management positions will be cut. The intention of this restructuring is to make organizations leaner and faster. However, these flatter organizations place added demands on the leaders at the top, as well as other employees. Now, more than ever, it is essential for mangers everywhere to be linked in their efforts to formulate and implement strategies. With far fewer managers to oversee activities, how are organizations coping? The experiences of Union Pacific when under the leadership of its former CEO, Mike Walsh, provide a good example.

For Walsh, strategic management at Union Pacific meant overseeing 23000 miles of track spread over 19 states, 2800 locomotives, 84000 rail-cars, and 30,000 employees. But in today’s flatter organization, Walsh could not depend on hordes of managers to operate this complex system. He firmly believed that everyone from the CEO down must understand what was going on inside the company at each operational level- I don’t think the CEO of the nineties will get away with being a hothouse plant. A CEO will have to know enough about operations to work the valves and switches in the middle of the night.

One of the reasons that CEOs feel so strongly about the needs to understand operations is that a flatter organization means that first level employees are given a lot more autonomy and a lot less oversight. A Case in point- in his early days on the job as CEO, Walsh discovered that 18% of all the bills UP sent out to customers contained errors. Traditionally, his response would have been to assign the problem to a Vice President, who would have handed it to someone else who would say, ‘if I can weather the storm, the boss will forget it’, and that would have been that.

In Union Pacific’s flat organization, Walsh took the problem directly to the people who could fix it. He created a cross functional team whose study revealed 20 major problems spread across every department form finance to shipping. He then created other teams, assigned one to each of these problems, and had them all report to a single manager who oversaw the entire effort. Walsh required that this manager and the teams report directly to him about once a month. Without a firsthand knowledge of the problem, Walsh could not have been effective in working with these teams. On the other hand, without some insight into the overall problems facing the firm, the teams could not have been effective in solving the problem. Flatter organization means that everyone must have a strategic appreciation of the entire business.