Research by Yue Maggie Zhou
Flat organizational structures are popular in management literature. Leaders are urged to reduce the layers of management, on the theory that employees are more productive when they have more say in the decision-making process.
But certain organizations may really need all of those middle managers, according to a study by Yue Maggie Zhou, assistant professor of logistics, business and public policy. Zhou became interested in the organizational structure of large organizations while working in corporate restructuring at the World Bank. “I was always amazed at how big some of these multi-national corporations are,” says Zhou, citing companies like IBM and Citigroup. “Looking at their structure and their org charts, I was also stunned to see how big their hierarchy is.” That seemed to go against the What were the
Such large organizations also deal with highly complex task systems. The most productive way to deal with complexity is to divide and conquer: organizations divide tasks and allocate them among different divisions. This specialization allows firms to be both faster and more responsive to the external environment. The more interdependent tasks are, the more potential communication channels exist between workers carrying out the tasks, which increases the need to coordinate between differing divisions and workers. Are flat organizational structures or hierarchical organizational structures more effective for managing that kind of environment?
To figure out how large organizations structured themselves to successfully balance the tradeoffs between specialization and coordination, Zhou wanted to observe what actually happens in the real world. Most prior studies of the hierarchy of large firms relied on theoretical modeling or computer simulations, but Zhou conducted an empirical study. She gathered data about organizational structures and business activities from more than 1,029 publicly traded U.S. equipment manufacturers through the Bureau of Economic Analysis. Equipment manufacturing entails multiple stages and requires frequent intermediate inputs, making it an excellent environment to measure two key dimensions of task systems: complexity and decomposability.
Complexity refers to the interdependence among tasks—how many links were in the system. Some task systems had hundreds of links, each representing an interaction between divisions and employees required to complete an action or process. Zhou found that the more links that existed in the task system, and the more clustered those links were, the more coordination was required by middle managers. Middle management served as an information bridge between divisions and individual workers, providing coordination between groups to allow for effective decision-making. So organizations with high levels of task complexity exhibit more specialization in the forms of divisions with the accompanying steeper hierarchy.
The extent to which a task system was decomposable also affected organizational structure. Tasks that are decomposable can be broken down into less complex sub-problems that are independent enough to allow further work to proceed separately on each of them. As tasks become more decomposable, less coordination is needed between divisions in order to facilitate decision making—because work can effectively be carried out independently. As the decomposability of the task systems decreased, so did the need for middle managers to serve as information bridges. These organizations had flatter structures.
As firms consider how to structure their management roles, Zhou recommends considering the complexity and decomposability of tasks before deciding to reduce management layers. While removing layers of management can help make a firm more agile and responsive, firms still need enough intermediate layers to coordinate their divisions.
Popular management theory deplores the creation of “silos” on the theory that specialization within divisions can keep knowledge from flowing freely between different parts of the organization. But Zhou sees benefits to modularization, particularly for very large firms. “It provides focus and lets units specialize,” says Zhou. “The role of middle managers is to pull things together--to synthesize information and make joint decisions.”
“Designing for Complexity: Using Divisions and Hierarchy to Manage Complex Tasks” was published in Organization Science, March 2013. For more information about this research, contact firstname.lastname@example.org.
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