You could ask: Is flat simply the latest fad? Or will it drive success in the digital performance measurement Age? Consider for your approval:
Management is expensive prohibitively expensive, actually. For proof of this statement, take your own fi rm, or any other nonfl at company you wish, and perform this exercise:
1. Total the salaries of all the managers; include benefits, bonuses, and any other form of contribution.
2. Follow the same process for all administrative staff members dedicated to supporting those managers.
3. Account for travel expenditures for all these individuals and those who travel to support them.
4. Factor in the proportioned rent for their offi ce space and the expense of their technology, offi ce equipment, and services such as Internet and phone access;
also include their various software as a service (SaaS) expenses.
5. Calculate the total investment in training, motivating, and retaining the managers.
6. Total these expenses, and add about 5 percent for contingency expenses (recruiting, relocation, etc.) not already noted.
The total represents the “management tax” your company pays to support the established hierarchy and, quite possibly, to enable bureaucracy. If you truly want to calculate how much money your company spends for not being fl at, consider also factoring in the work hours lost in meetings, as managers pull each other and/or workers out of productivity driven tasks (making or selling) to talk to them or to talk at them.
You might also account for the hours workers spent interacting with the software that modern corporations use to oversee their workforces the customer relationship management (CRM) that executives foist upon the sales and customer service teams to monitor them, the legion of HR processes, and the modern day paperwork that must be fi lled out to justify decisions and cover our collective asses. Without management, all those hours would likely be spent on mission critical tasks.
When you have a number or even a range of numbers that accurately depicts your organization’s management tax, consider this: Your fi rm would move that entire number from the expense column to the profi t column . . . if your organization were fl at. Th is is a good reason for any business owner or board of directors to at least pause to think about how their business might look and operate with little or no management. Yes, it seems diff erent so “out there.” But if “out there” means avoiding what amounts to billions of dollars wasted on management tax, well, that’s a lot of money. Still, we’ve just begun. Th ere are two even more compelling reasons to consider a fl at org structure to be more than just an interesting idea, even a compelling one.
EMPLOYEES PERFORM BETTER IN FLAT ORGANIZATIONS
Much better, in fact. Treehouse, a self learning platform that teaches users to build a website, write a mobile app, and even start a technology business, went fl at in 2013. Employees there report feeling empowered. Th ey say communication has greatly improved, while turnaround times on project issues, decision making, and budget allocation have been signifi cantly reduced. Ultimately, the employees feel a sense of ownership of their projects and their contribution to the bottom line. Jason Fried, founder of Basecamp (formerly called 37Signals), the webapplication company where “fl atness” is said to be a core value, told Inc.com that those who thrive in a fl at company aren’t those who necessarily crave old school recognition like dedicated management responsibilities and promotions that come with prestigious titles, but are those who thrive on accomplishing the mission in front of them. He also says that the company’s foray into more traditional management structure (assigning a dedicated manager to improve a department and watch over the team) was wholly unsuccessful. Fried commented, “Groups that manage themselves are often better off than groups that are managed by a single person. So when groups do require structure, we get them to manage themselves.” Granted, the sample size of fl at companies is still much smaller than the control size of their competitors. We are also happy to concede the fact that no one ever hears about fl at organizations that fail. Surely there have been a few fl at companies that didn’t survive, whether or not it was because of their fl at operation or other business issues.
Further, it’s diffi cult to fi nd a publicly traded company that is fl at perhaps because this is a strategy for long term success, not necessarily current quarter profi ts, or perhaps because companies founded as fl at are so profi table that owners see no reason to sell stock. Diffi cult, but they’re out there. Sun Hydraulics (NASDAQ: SNHY) of Sarasota, Florida, went public in 1997 as an answer to succession planning: Two of the founder’s three heirs did not want to participate in the business; the third is active on the board. Bob Koski, CEO from the company’s founding in 1970 until his death in the mid 2000s, brought this manufacturing fi rm public. Sun continues to grow enviably year after year, with sales of over $200 million in 2013. How fl at is Sun? Aside from the corporate offi cers (legally obligated to have titles), the only job title is Plant Manager for the employee who waters the plants. Th is remarkable 900 employee multinational organization is innovative not just in technology, management style, and environmental and community leadership; it is a net exporter to the rest of the world, including to China. And as is the case with all the fl at organizations we studied, employee engagement is through the ceiling.
Engaged workers exhibit much less absenteeism (and presenteeism, where they are physically at work but operate in a far less than optimum manner) than workers at their hierarchical rivals. Th at alone is worth its weight in gold and it is where many aspects of social come alive in a fl at organization. Engaged workers aren’t merely at work doing what they’re paid to do. Th ey also perform better at the tasks a command and control structure cannot incentivize or scare them into doing all the non compulsory stuff that is so essential in this knowledge economy. Th ey share on Twitter, IM, Jabber, Yammer, and Facebook their successes, failures, lessons learned, and the shortcuts found. Via text and email, they celebrate wins and communicate innovative solutions. Where once these team members were intentionally divided and conquered (and even forbidden to carry and use “personal” devices while “on the job”), in a world gone social they communicate freely. And that isn’t all:
▶ Engaged workers innovate more, because they care and because they are free to fail.
▶ Th ey are far more willing to go that elusive extra mile when times are tough or when it’s crunch time for a deadline.
▶ Engaged workplaces fi nd it much easier to hire top talent after all, who doesn’t want to work for a company they can love?
▶ Engaged workers are much more likely to recommend their friends to work at their company, even without referral bonuses/bribes as incentives.
In short, engaged workers give more of themselves. Th ey share. Th ey grow. Th ey make better decisions. Th ey prosper. Add the benefi ts of everything from improved engagement to removal of the management tax, and we hope you’ve already entered the realm of the imperative, of “must do” rather than “oh, that’s interesting.” But we aren’t even close to fi nished yet . . . Th e main reason a company must go fl at harkens back to the Law of Change:
CHANGE IS THE RESULT OF INSURMOUNTABLE MARKET PRESSURE
In the Social Age, when your competitor goes fl at and you don’t, you’re up the creek. How on Earth can you compete with a company with drastically lower overhead and workers who are so much more engaged, productive, and innovative than yours?
As many companies discover (including stalwarts like those in the American auto industry), there is plenty of room for ineffi ciency when a market is vibrant and incredibly lucrative (like video gaming is right now). It is entirely possible that VALVE’s biggest competitor, Electronic Arts (EA; worth $4.8 billion as of this writing), will get away with maintaining the hierarchical nature of its existence. It will still thrive, albeit with a monstrous management tax to pay, like an anchor dragging along the ocean fl oor as the ship of commerce sails on, oblivious. But look at Morning Star. It sells an absolute commodity, a “me too” product if ever there was one. You don’t go to the store saying, “I need my Morning Star!” and happily pay 20 percent more for the company’s sauce; you likely have no idea which products even contain Morning Star tomatoes and which contain a rival’s paste. So Morning Star can’t possibly charge more for its product. It simply must run in the most effi cient, engaging way possible. If you want to compete with Morning Star for market share, you’ll have to do it under the weight of your hefty management tax and through the less than inspired work of your less than engaged employees.
How long can you keep that up?
Th e same scenario plays out with Gore & Associates. With its amazingly diverse product line, this company operates in a vast number of markets and industries and thrives in each! Would you deliberately compete against Gore? Maybe you would, but we are really glad we don’t have to. At least not through a management heavy, slow to adapt, traditional business model that might bleed billions trying. Times have changed. Today, as you read this book, we’re deep in the midst of a cataclysmic (and wonderful) change in the way business is done. What used to be considered impossible is now happening. Fueled by collaboration and built on the foundation of organic communication with a click of a button or a share sent via the touch of a screen the Social Age is upon us. Companies that used to be outliers like VALVE, Morning Star, Sun, and Gore will become the norm. It’s already happening at organizations like Basecamp and Treehouse. Same with Semco, a Brazilian fi rm we’ve been tracking for years now, and Menlo Innovations, a disruptively innovative software fi rm based in Michigan. Again and again, fl at companies with open communication, authentic leadership, and engaging cultures are crushing it and they’re coming to a market, and an industry, near you.
HOW DO YOU FLATTEN HIERARCHIES?
In late 2013, Zappos announced that, in order to prevent bureaucracy from infi ltrating the company as it continued its growth, it was going fl at a change the billion dollar online retailer owned by Amazon will have implemented by the end of 2014. Th e only thing is, Zappos isn’t going fl at. It’s going fl at ter. Th e company’s move toward a Holacracy (from the Greek word holon, meaning a whole that is part of a greater whole) is arguably a step in the fl at direction. Perhaps like you, we had a lot of questions about Zappos, the move to fl atter, and the model. Let’s take a look at some of the answers to those questions: ▶ No, Amazon does not control how Zappos is run; although Amazon bought Zappos in 2009, CEO Tony Hsieh is given free rein in running the company; the parent and child fi rms are completely distinct. ▶ Yes, a lot about Zappos is “a little w eird”a trait it encourages in employees. Engagement is very high. Customer service is legendary. Hsieh is a healthy culture zealot. Zappos doesn’t do things like everybody else, so the idea that the company is changing its management structure shouldn’t surprise anyone. ▶ It’s true that many aspects of Zappos have always leaned t oward inclusive. For instance, Zappos.com’s home page used to sport a video of Hsieh in his CEO’s “offi ce,” which was a cubicle in the center of the cube farm at headquarters. Yes, at the center the top dog didn’t even sit near a window.
Ultimately, Zappos is a company where the CEO is accessible to the rest of the staff on a daily basis, an aspect of the company that is well within the spirit of a more open, democratic and fl at workplace. By this virtue alone, Zappos is way ahead of most companies out there. Still, until the press release stating that Zappos was going fl at was read by millions, the CEO sat at the top of a familiar looking organizational pyramid. Th ere were managers and managers of managers, as at most companies with 1,500 employees. But soon there won’t be. Or, at least, they won’t have the title “manager.” Still, to think of a Holacracy as fl at, without bosses and subordinates, is inaccurate. A Holacracy is perhaps best compared to a Venn diagram, where workers may belong to several different “circles,” each with diff erent responsibilities. At Zappos some of the circles have command authority over other circles, and while they don’t use the word “manager,” their leaders manage. Clear as mud yet?
Th e bottom line: Zappos is taking an important step away from hierarchy. It is deliberately distancing operations from hierarchy’s handmaiden, bureaucracy. That’s an important point. Hsieh has no interest in running a lumbering, regimented, calcifi ed company. With this step, he’s backing his fi rm away from Industrial Age management and toward something that is more in the direction of fl at, and certainly (despite naysayers) more in the spirit of fl at. Zappos isn’t the fi rst Holacracy; it’s just the largest to date. Medium, a publishing platform and the third company founded by Evan Williams of Twitter fame, is a Holacracy where employees “focus on the work that needs to be done rather than the people who are in charge.” So, too, was Ternary Software, which lives on today as HolacracyOne, a consulting fi rm with Brian Robertson, one of Ternary’s founders (and the person credited with inventing the term Holacracy) as CEO. Its mission: spread the Holacracy gospel to all who will listen including Zappos, which HolacracyOne is helping to make the shift (and therefore turning Holacracy into the new black among bloggers, management consultants, and self anointed thought leaders).
A Holacracy is a move toward the flatter end of the spectrum for leaders who just aren’t ready to jump in with both feet. Does that sound like you? If so, we have some advice.
Management is expensive prohibitively expensive, actually. For proof of this statement, take your own fi rm, or any other nonfl at company you wish, and perform this exercise:
1. Total the salaries of all the managers; include benefits, bonuses, and any other form of contribution.
2. Follow the same process for all administrative staff members dedicated to supporting those managers.
3. Account for travel expenditures for all these individuals and those who travel to support them.
4. Factor in the proportioned rent for their offi ce space and the expense of their technology, offi ce equipment, and services such as Internet and phone access;
also include their various software as a service (SaaS) expenses.
5. Calculate the total investment in training, motivating, and retaining the managers.
6. Total these expenses, and add about 5 percent for contingency expenses (recruiting, relocation, etc.) not already noted.
The total represents the “management tax” your company pays to support the established hierarchy and, quite possibly, to enable bureaucracy. If you truly want to calculate how much money your company spends for not being fl at, consider also factoring in the work hours lost in meetings, as managers pull each other and/or workers out of productivity driven tasks (making or selling) to talk to them or to talk at them.
You might also account for the hours workers spent interacting with the software that modern corporations use to oversee their workforces the customer relationship management (CRM) that executives foist upon the sales and customer service teams to monitor them, the legion of HR processes, and the modern day paperwork that must be fi lled out to justify decisions and cover our collective asses. Without management, all those hours would likely be spent on mission critical tasks.
When you have a number or even a range of numbers that accurately depicts your organization’s management tax, consider this: Your fi rm would move that entire number from the expense column to the profi t column . . . if your organization were fl at. Th is is a good reason for any business owner or board of directors to at least pause to think about how their business might look and operate with little or no management. Yes, it seems diff erent so “out there.” But if “out there” means avoiding what amounts to billions of dollars wasted on management tax, well, that’s a lot of money. Still, we’ve just begun. Th ere are two even more compelling reasons to consider a fl at org structure to be more than just an interesting idea, even a compelling one.
EMPLOYEES PERFORM BETTER IN FLAT ORGANIZATIONS
Much better, in fact. Treehouse, a self learning platform that teaches users to build a website, write a mobile app, and even start a technology business, went fl at in 2013. Employees there report feeling empowered. Th ey say communication has greatly improved, while turnaround times on project issues, decision making, and budget allocation have been signifi cantly reduced. Ultimately, the employees feel a sense of ownership of their projects and their contribution to the bottom line. Jason Fried, founder of Basecamp (formerly called 37Signals), the webapplication company where “fl atness” is said to be a core value, told Inc.com that those who thrive in a fl at company aren’t those who necessarily crave old school recognition like dedicated management responsibilities and promotions that come with prestigious titles, but are those who thrive on accomplishing the mission in front of them. He also says that the company’s foray into more traditional management structure (assigning a dedicated manager to improve a department and watch over the team) was wholly unsuccessful. Fried commented, “Groups that manage themselves are often better off than groups that are managed by a single person. So when groups do require structure, we get them to manage themselves.” Granted, the sample size of fl at companies is still much smaller than the control size of their competitors. We are also happy to concede the fact that no one ever hears about fl at organizations that fail. Surely there have been a few fl at companies that didn’t survive, whether or not it was because of their fl at operation or other business issues.
Further, it’s diffi cult to fi nd a publicly traded company that is fl at perhaps because this is a strategy for long term success, not necessarily current quarter profi ts, or perhaps because companies founded as fl at are so profi table that owners see no reason to sell stock. Diffi cult, but they’re out there. Sun Hydraulics (NASDAQ: SNHY) of Sarasota, Florida, went public in 1997 as an answer to succession planning: Two of the founder’s three heirs did not want to participate in the business; the third is active on the board. Bob Koski, CEO from the company’s founding in 1970 until his death in the mid 2000s, brought this manufacturing fi rm public. Sun continues to grow enviably year after year, with sales of over $200 million in 2013. How fl at is Sun? Aside from the corporate offi cers (legally obligated to have titles), the only job title is Plant Manager for the employee who waters the plants. Th is remarkable 900 employee multinational organization is innovative not just in technology, management style, and environmental and community leadership; it is a net exporter to the rest of the world, including to China. And as is the case with all the fl at organizations we studied, employee engagement is through the ceiling.
Engaged workers exhibit much less absenteeism (and presenteeism, where they are physically at work but operate in a far less than optimum manner) than workers at their hierarchical rivals. Th at alone is worth its weight in gold and it is where many aspects of social come alive in a fl at organization. Engaged workers aren’t merely at work doing what they’re paid to do. Th ey also perform better at the tasks a command and control structure cannot incentivize or scare them into doing all the non compulsory stuff that is so essential in this knowledge economy. Th ey share on Twitter, IM, Jabber, Yammer, and Facebook their successes, failures, lessons learned, and the shortcuts found. Via text and email, they celebrate wins and communicate innovative solutions. Where once these team members were intentionally divided and conquered (and even forbidden to carry and use “personal” devices while “on the job”), in a world gone social they communicate freely. And that isn’t all:
▶ Engaged workers innovate more, because they care and because they are free to fail.
▶ Th ey are far more willing to go that elusive extra mile when times are tough or when it’s crunch time for a deadline.
▶ Engaged workplaces fi nd it much easier to hire top talent after all, who doesn’t want to work for a company they can love?
▶ Engaged workers are much more likely to recommend their friends to work at their company, even without referral bonuses/bribes as incentives.
In short, engaged workers give more of themselves. Th ey share. Th ey grow. Th ey make better decisions. Th ey prosper. Add the benefi ts of everything from improved engagement to removal of the management tax, and we hope you’ve already entered the realm of the imperative, of “must do” rather than “oh, that’s interesting.” But we aren’t even close to fi nished yet . . . Th e main reason a company must go fl at harkens back to the Law of Change:
CHANGE IS THE RESULT OF INSURMOUNTABLE MARKET PRESSURE
In the Social Age, when your competitor goes fl at and you don’t, you’re up the creek. How on Earth can you compete with a company with drastically lower overhead and workers who are so much more engaged, productive, and innovative than yours?
As many companies discover (including stalwarts like those in the American auto industry), there is plenty of room for ineffi ciency when a market is vibrant and incredibly lucrative (like video gaming is right now). It is entirely possible that VALVE’s biggest competitor, Electronic Arts (EA; worth $4.8 billion as of this writing), will get away with maintaining the hierarchical nature of its existence. It will still thrive, albeit with a monstrous management tax to pay, like an anchor dragging along the ocean fl oor as the ship of commerce sails on, oblivious. But look at Morning Star. It sells an absolute commodity, a “me too” product if ever there was one. You don’t go to the store saying, “I need my Morning Star!” and happily pay 20 percent more for the company’s sauce; you likely have no idea which products even contain Morning Star tomatoes and which contain a rival’s paste. So Morning Star can’t possibly charge more for its product. It simply must run in the most effi cient, engaging way possible. If you want to compete with Morning Star for market share, you’ll have to do it under the weight of your hefty management tax and through the less than inspired work of your less than engaged employees.
How long can you keep that up?
Th e same scenario plays out with Gore & Associates. With its amazingly diverse product line, this company operates in a vast number of markets and industries and thrives in each! Would you deliberately compete against Gore? Maybe you would, but we are really glad we don’t have to. At least not through a management heavy, slow to adapt, traditional business model that might bleed billions trying. Times have changed. Today, as you read this book, we’re deep in the midst of a cataclysmic (and wonderful) change in the way business is done. What used to be considered impossible is now happening. Fueled by collaboration and built on the foundation of organic communication with a click of a button or a share sent via the touch of a screen the Social Age is upon us. Companies that used to be outliers like VALVE, Morning Star, Sun, and Gore will become the norm. It’s already happening at organizations like Basecamp and Treehouse. Same with Semco, a Brazilian fi rm we’ve been tracking for years now, and Menlo Innovations, a disruptively innovative software fi rm based in Michigan. Again and again, fl at companies with open communication, authentic leadership, and engaging cultures are crushing it and they’re coming to a market, and an industry, near you.
HOW DO YOU FLATTEN HIERARCHIES?
In late 2013, Zappos announced that, in order to prevent bureaucracy from infi ltrating the company as it continued its growth, it was going fl at a change the billion dollar online retailer owned by Amazon will have implemented by the end of 2014. Th e only thing is, Zappos isn’t going fl at. It’s going fl at ter. Th e company’s move toward a Holacracy (from the Greek word holon, meaning a whole that is part of a greater whole) is arguably a step in the fl at direction. Perhaps like you, we had a lot of questions about Zappos, the move to fl atter, and the model. Let’s take a look at some of the answers to those questions: ▶ No, Amazon does not control how Zappos is run; although Amazon bought Zappos in 2009, CEO Tony Hsieh is given free rein in running the company; the parent and child fi rms are completely distinct. ▶ Yes, a lot about Zappos is “a little w eird”a trait it encourages in employees. Engagement is very high. Customer service is legendary. Hsieh is a healthy culture zealot. Zappos doesn’t do things like everybody else, so the idea that the company is changing its management structure shouldn’t surprise anyone. ▶ It’s true that many aspects of Zappos have always leaned t oward inclusive. For instance, Zappos.com’s home page used to sport a video of Hsieh in his CEO’s “offi ce,” which was a cubicle in the center of the cube farm at headquarters. Yes, at the center the top dog didn’t even sit near a window.
Ultimately, Zappos is a company where the CEO is accessible to the rest of the staff on a daily basis, an aspect of the company that is well within the spirit of a more open, democratic and fl at workplace. By this virtue alone, Zappos is way ahead of most companies out there. Still, until the press release stating that Zappos was going fl at was read by millions, the CEO sat at the top of a familiar looking organizational pyramid. Th ere were managers and managers of managers, as at most companies with 1,500 employees. But soon there won’t be. Or, at least, they won’t have the title “manager.” Still, to think of a Holacracy as fl at, without bosses and subordinates, is inaccurate. A Holacracy is perhaps best compared to a Venn diagram, where workers may belong to several different “circles,” each with diff erent responsibilities. At Zappos some of the circles have command authority over other circles, and while they don’t use the word “manager,” their leaders manage. Clear as mud yet?
Th e bottom line: Zappos is taking an important step away from hierarchy. It is deliberately distancing operations from hierarchy’s handmaiden, bureaucracy. That’s an important point. Hsieh has no interest in running a lumbering, regimented, calcifi ed company. With this step, he’s backing his fi rm away from Industrial Age management and toward something that is more in the direction of fl at, and certainly (despite naysayers) more in the spirit of fl at. Zappos isn’t the fi rst Holacracy; it’s just the largest to date. Medium, a publishing platform and the third company founded by Evan Williams of Twitter fame, is a Holacracy where employees “focus on the work that needs to be done rather than the people who are in charge.” So, too, was Ternary Software, which lives on today as HolacracyOne, a consulting fi rm with Brian Robertson, one of Ternary’s founders (and the person credited with inventing the term Holacracy) as CEO. Its mission: spread the Holacracy gospel to all who will listen including Zappos, which HolacracyOne is helping to make the shift (and therefore turning Holacracy into the new black among bloggers, management consultants, and self anointed thought leaders).
A Holacracy is a move toward the flatter end of the spectrum for leaders who just aren’t ready to jump in with both feet. Does that sound like you? If so, we have some advice.