Inc. Article: 8 Reasons Flat Organizations Don’t Work, According to a Turnaround CEO

inc-logoThis article featuring Association of Interim Executives RED Team Member, Richard Lindenmuth, was originally posted on

You’ve heard a lot about the benefits of non-hierarchical organizations, from Morning Star Tomatoes to Zappo’s to the David Allen Company. And you likely know by now that while a flat organization is an appealing concept, some companies have backed away from a flat structure or reported that they can be tricky to get right.

Or maybe they just don’t work at all. That’s the opinion of Richard Lindenmuth, who for 30 years has served as an interim CEO, and works with the Association of Interim Executives. One of his most recent tasks was turning around the troubled company Styrotek. He achieved this goal in large part by un-flattening its previously flat management structure and was able to return Styrotek to profitability in three months — even though it was affected by the California drought.

Here’s why Lindenmuth believes a flat organizational structure is a bad, bad idea:

1. No one does the jobs that no one likes.
At Styrotek, one of these jobs was cleaning and changing the molds used to create the company’s packaging products. As a result, production would sometimes have to be delayed while someone completed the job in haste. “We had terrible disarray and little ability to produce a final product,” Lindenmuth says. “When I asked who was responsible for cleaning and changing the molds, the answer was, ‘Oh, we all do that.'” With no single person held accountable, the job just wasn’t getting done.

2. There’s no one to play referee.
Ask different departments of a company what products it should make, and you’ll get completely different answers. “Design would like to have the best series of products,” Lindenmuth says. “Sales would like to have one of every product. Manufacturing would like to produce one product at big volume.” You need managers to balance these differing viewpoints and find the best solutions or else bad decisions will be made.

3. No one imposes standards.
We all know how annoying it is when an IT department declares, for instance, that everyone must use Google Apps instead of Outlook (or vice versa). Annoying–but very necessary because if each department — or individual employee — is using the software he or she likes best, combining their data becomes a technological nightmare. Without a central authority to lay down the law about who uses what, that’s exactly what wil happen.

4. Flat teams can’t scale.
With a few notable exceptions, the successful examples of flat teams are all small groups of people–and there’s a reason for that, Lindenmuth says. “A Navy SEAL squad is a flat organization, generally speaking. No one salutes anyone, there are overlapping skill sets, and everybody does everything.” It works, he says, because SEAL squads are usually no more than eight people. “You can’t have 20-man flat teams,” he says.

5. No one deals with performance problems.
What happens when an employee isn’t pulling his or her weight? “There’s no one to have the discussion with that person,” Lindenmuth says. In one flat organization, he says, “Everyone knew that this one maintenance man was not productive.” It was so bad, he says, that people whose equipment needed service during his shift would just keep on working despite the malfunctions because they knew that if he tried to repair their machines it would just make matters worse. “Everyone knew about it but no one was responsible for it.”

6. No one asks the tough questions.
In most organizations, 20 percent of the customers produce 80 percent of the sales, Lindenmuth says. “That probably means I’m not making much money from some of my customers. In a flat organization, no one’s going to bring that up. In a hierarchical organization you have a manager to ask how each of our customers are doing.” This is why, he says, “If you’re geared toward productivity, you really need some hierarchy.”

7. Cliques will form.
Here’s a common example of a flat organization: A grade-school class. And what happens in a class is a good guide to what might happen in a flat group of adults too. In one flat organization Lindenmuth led, a clique formed such that only members of the clique were able to get raises. Since that clique was all the same ethnicity, this situation was not only bad for morale and productivity, it could easily have resulted in a lawsuit.

8. Hierarchies will arise spontaneously, whether you want them or not.
That always happens in a grade school class and it happens in flat organizations as well. “There’s always someone who says, ‘I think we should do this,’ and people listen.” Lindenmuth notes.

But maybe they shouldn’t. Someone who’s quick to propose a course of action may or may not be the leader your organization needs to be most effective. The person with the best ideas, the best people skills, and the clearest vision of what needs to be done is the person who should really be in charge. That should be someone you select, not someone who just happens to speak up in a flat organization.