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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.