Should SMEs Aim For A Tall Or Flat Organisational Structure?

The more layers of management and approval processes, the taller the organisational structure. More often than not, SMEs start off with a relatively flat structure. The decision to then maintain it, or to steer the company towards a tall structure, is dependent on various competency factors such as the speed of decision making, cost restrictions, staff morale and concerns on the duplication of effort.

Table of Contents

Speed of decision making

With lesser tiers of approval needed, flat organisations can make business decisions fairly quickly. As there is lesser separation between the front line staff and key decision makers, the company can respond to the changing business needs with efficiency. As such, a flat structure can be exceptionally useful for SMEs that are operating in rapidly changing environments, or in instances whereby a prompt follow up to a competitor’s action is required.

However, flat organisations can be problematic when the SME grows in size. Without a clear chain of command, there may be employees who step over the line and make decisions on their own without prior consultation. This can result in a lack of alignment in the overall brand. As such, clear guidelines on employee autonomy need to be set out and communicated. For instance, a sales staff will need to know the extent of discount that he can provide to a client of a certain profile. Anything beyond the range of acceptance may require approval from the direct supervisor. Having such regulations in place can help prevent consumers from feeling unhappy about the large differences in price points for the same product and service.

Effort duplication

Flat organisations, with lesser hierarchy, can sometimes mean that there is lesser monitoring on the overall workflow. Without more people overseeing the entire process, SMEs with a flat structure may risk having misinformed members. Given that flat organisations typically have blurred lines separating responsibilities, there is a chance that more than one employee may be working on the same thing. Without proper communication channels, different teams may also risk competing for the same project tender.

However, it is not to say that tall organisations have no risk in duplicating efforts. When there is a long chain of command, information passed down may be altered and inaccurate, leading to the need for multiple revisions. In this scenario, more effort is required to achieve the same results due to poor communication.

Cost concerns

For SMEs that are in the infancy or beginning stages of operation, a cash crunch is both common and problematic. Flat organisations, with its lean pool of managers, can help reduce costs. This is because there is no need to hire more managers to manage these managers. In addition, the smaller number of employees within the company can facilitate the building of a close-knit community, which can potentially lead to higher employee engagement, and hence a decrease in turnover. This ultimately translates into a reduction in costs associated with retraining new hires.

That being said, with fewer layers of authority governing the organisation, there is a need to invest in training cross-functional skills. Resources in an SME is typically spread thinly across various functions. For instance, instead of having product-specific marketing teams, there may just be one department handling all marketing matters for the entire firm. That department may also need to help in public relations matter, social media promotion, and even run events.

As such, the possibility of a cash flow crisis is very real in SMEs. Besides cost cutting, creating triage payments, and hastening the collection process, P2P lending is also another possible business financing solution.

Staff morale

In a flat organisation within a small SME, employees tend to be more engaged in the decision making process, and have a higher possibility of making a more direct influence in the company. When executed well, this can result in better coordination, communication, and collaboration to boost morale.

However, this is not to say that individuals working in tall organisations are undriven. In fact, with more career advancement opportunities through the layers of management, employees may be motivated to work hard to be promoted.

Expansion restrictions

More often than not, the organisational structure can be limited by how big the company is. As SMEs grow over time, there may be an increasing need to standardise more items for consistency. With a flat structure, it can be difficult and overwhelming to manage many people at the same time, with just a few managers. Staff may be unsure of who to approach, decision making can become messy, and the entire system may just fail due to the large number of employees involved.

When determining to expand the company, SMEs are often faced with the dilemma of balancing the boon and bane of tall and flat organisations. Fortunately, there is no one clear answer as to the best structure to adopt. Different types of organisational structures can be in place in different working teams even within the SME.

View disclaimer notice here.