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HUMAN RESOURCES

Thinking Flat

Why three Inc. 500 companies opt for non-traditional, flat organizations.
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Fewer CEOs of fast-growth companies are opting for traditional organizations. Why? They no longer work

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Fast-growth companies are kind of the petri dishes of the economy: they are where the experimenting takes place. Their CEOs look askance at models that don't work, and they learn from mistakes. As a result, while big companies are shedding layers of middle management under the auspices of that gruesome word downsizing, many growth companies are already operating with lean management structures.

A significant number have even made their way to this list while forgoing what's usually considered top management. Fifty-one percent of these companies have never hired a marketing director. Sixty-one percent have neither a chief operating officer nor a director of personnel. Thirty-two percent make do without a controller or a chief financial officer; 40% have no sales director; and 67% manage their computer and telephone systems without an information-systems guru.

Partly, those statistics result from the large number of Inc. 500 businesses that employ relatively small numbers of people. Partly, they're skewed by the majority of companies -- 55% of the list -- that were started by partners who divvy up management turf along with titles like CEO and president and chairman.

But largely, those statistics result from companies actively and aggressively working to keep their management as uncastelike as possible. "I don't think there's ever such a thing as a flat 'flat organization," says Jo-Anne Dressen-dofer, whose now 30-person marketing firm, Imedia, in Morristown, N.J., is #296 on this year's list. "They have little bumps in them; there still need to be people managing the work and people doing the work. What smooths it out, though, is that man-agers also do the work, and people who usually are just considered workers are brought into the managing arena." In flat organizations that succeed, buck-passing tiers are traded for employee "empowerment" -- a word overused almost to the point of meaninglessness, yet employed anyway by somewhat apologetic CEOs. ("Jeez, I know this sounds cheesy, but...")

In some cases, it is "the new worker" who forces the issue. Anxious for autonomy yet looking to be part of a team, the bright people who staff growing companies today are too independent and creative to tolerate either bureaucracy or autocracy. They won't bear frustrating structures.

Jo-Anne Dressendofer learned that firsthand. Back in early 1992 she had what she thought was a nonhierarchical company. After all, after three years in business, her company didn't have any bosses.

What it did have was an inordinate CEO supremacy. "One day six or seven people marched into my office and told me that if I didn't let go, they were all going to quit," she says. "These were the people that if they had walked, the company would have collapsed." One woman was blunt. "Jo-Anne," she said, "it's not going to work if we have to get your permission for everything."

Over the next several months the company met in groups to try to figure out a better way to run the business -- keeping it as title-free as it already was but distributing accountability as well. What developed was a team-management approach, in which groups of employees have real responsibility for most operational issues and client services -- without having to get Dressendofer's sign-off all the time.

With the company a year into the new system, Dressendofer says that decisions get made slowly, that several key employees left because they didn't like the forced participation, and that there are times she sits in on team meetings with her fists clenched under the table, watching novice leaders "go through the experience of making poor decisions." But business is up by $1 million -- with profits shared by everyone -- and the team decisions are getting better.

For other companies, a flat management structure is the way to increase both productivity and creativity. "You know the idea that work expands to fill the time allotted to it? I believe it's a real principle," says Richard McCloskey, whose eight-year-old company, System Connection (#431), in Provo, Utah, now employs 125 in manufacturing cables and modems.

"Hire middle managers, and they generate work, and everybody's busy, but nobody's really getting anything done. We've tried to avoid having a lot of people reporting to other people and have tried to keep decision making within the groups. People make decisions themselves, for instance, about returns or swap-outs with customers." The company also operates without budgets, teaching (albeit slowly) self-imposed fiscal accountability even as revenues balloon from 1992's profitable $8.7 million to this year's projected $25 million.

McCloskey says he's tried deliberately to delegate and not to bring in too many managers. In the cable business there are two layers between him and floor employees. In the modem business, acquired earlier this year, there are just two layers, total. Allowing people to make decisions autonomously may lead to some overlap of effort, he says, "but what you get is a lot more creativity, which makes up for it."

Many flat companies are spawned by CEOs who have lived through hierarchical organizations and have reached one solid conclusion: they don't work. Bob Felton emerged from as rank-rich a background as they come: he had spent nine years in the navy and had done a stint at the Fortune 500 company Kaiser Engineering. When he started his first business, a consulting firm, he embarked upon the same layered structure. But in 1988, when he started the Indus Group (#3), a maker of management software in San Francisco, he defected from his previous models.

"The other way doesn't work," says Felton. "With big-company organization -- more bureaucracy, more rules, more people to keep the rules -- people get disenfranchised, and they're not responsible. The rules become responsible."

Today the 250 staffers of Indus organize around projects (new-product development, customer support) in groups that regularly expand and contract. Felton keeps up with their work through electronic mail: each Friday, all 250 people type up one-page summaries of what they worked on that week, what their plans are for the coming week, and what impediments they've run into. The packet is posted on the electronic bulletin board, and Felton reads them all, responding to many himself. "It helps short-circuit what happens in hierarchies, where you're not allowed to go and talk to someone," says Felton. "And because people have to do it, it's not like they have to take a risk to go around a chain of command. It's what we expect.

-- Leslie Brokaw

Last updated: Oct 1, 1993




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