Saturday, September 23, 2023

How flat companies can still scale despite their structure

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Shreya Christina
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Dylan TaylorChairman & CEO, Voyager Space Holdings.

Startups often start with a flat organizational structure. In many cases there is no hierarchy. As equal partners, financial experts or operations managers are not accountable to an organization-wide regulator such as a CEO. Instead, decision-making power is based on expertise. Some flat companies don’t even use job titles at all.

However, the prevailing thought is that organizations that have not yet matured the flat structure are difficult to acquire and scale up or that this structure only works for small businesses.

I would say that ‘flat’ companies can still grow successfully, sometimes quickly, to exceed forecasts and reach the point of acquisition by a larger company.

Growth does require coordination and communication, but it is outdated to think that such a need would harm autonomy and lead to a collapse of the flat structure. On the contrary, self-direction must be encouraged and celebrated in order to work effectively.

These are the necessary steps leaders can take to scale a flat organization.

Consider automation to fill communication gaps.

In a flat structure, data and information must flow between different silos. Teams need to talk to other departments in their organization.

Artificial intelligence can play an important role in facilitating transparency and communication. Automated systems or more granular use of artificial intelligence can not only improve dialogue and transparency, but can also identify core competencies and organizational weaknesses.

The use of this type of technology is not unique to flat organizational structures, but it becomes critical when there is no hierarchy for information to flow naturally.

Harvard Business Review looked at a number of companies that have managed to scale up despite their flat structure† The Finnish engineering and creativity company Futurice is a good example of how flat companies work. The founder and the team divide and rule the work. Team members perform various tasks and have the authority to make decisions in their jobs. Futurice employees work on projects where they feel they can add expertise.

The company uses AI “to map experience, competencies and knowledge, i.e. determine who knows what. To avoid the limitations of structured reporting or paperwork, the company has created a dedicated search engine that leverages discussions across multiple existing data sources, including Slack, documents, and calendar events.

Set up a pod system.

Futurice calls this idea a “tribe” system, but it somewhat deceives the purely flat approach. A pod system brings the company into groups that operate autonomously, allowing for expansion without the burden of communication overwhelming each individual’s time.

The tribes or pods are required to provide a recurring report detailing their work, but they have the adaptability and mobility to make independent decisions and respond to market conditions.

Reactivity is a major advantage of the flat corporate structure as everyone is able to make quick decisions that benefit the company or their department.

Keep culture while growing.

Some companies lose their identity or experience turbulence during growth. It can lead consumers to think that the business has deteriorated. For a flat business to grow, it must maintain the culture that made it successful. In fact, any innovative leader looking to buy a flat company will do it.

When a company expands from 20 employees to 200, it’s easy to lose track of your story. That story needs to be creatively told and retold to new hires to help them integrate seamlessly into the momentum that led to the growth opportunity.

Storytelling can also help new hires buy in and create a corporate culture that hopefully empowers everyone who comes in. If the story describes the successes of a new employee who fits seamlessly into the ingrained culture, you know that such a culture is now equipped to transfer to and by new talent.

In a podcast with Paul Green, co-founder of The Morning Star Company, host Jacob Morgan learned that the company succeeds without managers or hierarchy. Green believes it is crucial to prevent employees from forming cliques or working in spite of each other. “Employees don’t report to a boss, they report to each other and their work is based on CLOUs (colleague letter of understanding) they create.”

Win with transparency.

Agility and the ability to make quick decisions are great until someone disagrees. When a disagreement arises – when another employee challenges the decision of another autonomous employee – there must be transparency in the decision-making process to adequately explain why such a decision was made.

It’s like something out of the show Veep when Julia Louis-Dreyfus’ character suggests her office release every email and communication in an effort to hide their actual mess in the deluge.

In the case of Futurice, the company uses extensive transparency measures to build trust. Salaries, earnings reports, payouts and even credit card expenses are visible to all. Such transparency is also essential for a successful internal audit as and when it is needed to grow.

While it may seem like more work to implement such elaborate transparency models, it can be a ticket to helping companies stay true to themselves and maintain their identities. Many find success in the early years of using such a model, as long as they remain agile and responsive to market conditions, while avoiding the perception of an unwritten hierarchy. It matters how communication and control are organized.

Invest in each other. Four successes. Learn from failures. Success as a team and failure as a team. Companies will find that in the long run they enjoy much more highs than lows. Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?

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