Hidden Hierarchies

Next to its lack of job titles, W.L. Gore & Associates is most famous in the business world for its flat, nonhierarchical organizational structure and use of small, self-managed teams. But other American companies over the years have tried to institute flat hierarchies and utilize self-managed teams as well, with varying degrees of success.

    Eileen Shapiro–president of the Hillcrest Group, a Cambridge, Massachusetts, consulting firm, and author of the book Fad Surfing in the Boardroom: Managing in the Age of Instant Answers–is skeptical about whether those concepts ever work as well in reality as they do in theory.

    “I’ve been inside a lot of companies that espouse flat organizational structures and self-management,” she says. “But when you really start looking at how things actually work, you find that there is in fact a hierarchy–one that is not explicit.”

    Companies that espouse flattened hierarchies and self-managed teams, Shapiro says, often are headed by charismatic founders who either impose a subtle, unspoken hierarchy or allow one to develop. In Shapiro’s book, she cites the example of her former employer, consulting firm McKinsey & Co., where co-founder Marvin Bower coined the term “nonhierarchical meritocracy.” In actuality, Shapiro writes, the firm had an unofficial hierarchy of three to six levels, “each with progressively more scope and control–and each with progressively higher billing rates.”

    The existence of a shadow hierarchy didn’t make McKinsey less effective as an organization, Shapiro writes. Instead, “it simply meant that this firm had a hierarchy, just like every other organization that I’ve ever seen.”

    A company that didn’t fare so well in its experiments with flat organizational structure and self-managed teams, Shapiro says, was Digital Equipment Corp., a powerhouse in the mainframe computer era of the 1970s and ’80s. DEC produced or popularized many technological innovations, from networking to the first comprehensive Internet search engine. “DEC invented things that could have been the whole S&P 500,” Shapiro says. “But they had a phenomenal ability to see around corners and then to miss those opportunities.”

    In place of a conventional corporate hierarchy, DEC had a matrix team structure in which workers in engineering, marketing and other departments also served on teams organized around product lines, according to a 1994 Fortune article. That structure made DEC vulnerable to struggles between team and departmental leaders.

    “But the real problem, looking from the outside, was that self-managing really came down to one person,” Shapiro says. “The company founder, Ken Olsen, was the one who controlled everything.”

    After DEC suffered big losses in the early 1990s, Olsen left and the company abandoned the matrix team structure. But the company never regained its footing, and eventually was acquired by Compaq in 1998.

    “The reality is that people do organize around rules and rewards and punishments,” Shapiro says. “In the worst cases, it’s a more unfair system than one with clear rules and boundaries. It doesn’t necessarily benefit the best people, but rather the most politically adept people, the ones who speak the language of the open system, the no-hierarchy or whatever the buzzwords are.”

Workforce Management, February 27, 2006, p. 24 — Subscribe Now!