The flattening hierarchy: not

Over the past few decades one of the things that management gurus, consultants and the popular business press have argued is that firms are flattening their hierarchies. Flattening typically refers to the elimination of layers in a firm's hierarchy (can't say I've seen much of it in universities) and the broadening of managers' spans of control. The alleged benefits flow primarily from pushing decisions downward to enhance market responsiveness and improve accountability and morale.

The questions this gives rise to are, Has flattening actually occurred? and where it has, Has it delivered on its promise? These questions are examined in a new paper in the Fall 2012 issue of the California Management Review. The paper, The Flattened Firm: Not As Advertised, is by Julie Wulf.. Wulf writes,

[ ... ] I set out to investigate the flattening phenomenon using a variety of methods, including quantitative analysis of large datasets and more qualitative research in the field involving executive interviews and a survey on executive time use [ ...] . Using a large-scale panel dataset of reporting relationships, job descriptions, and compensation structures in a sample of over 300 large U.S. firms over roughly a 15-year period, my co-authors and I began by characterizing the shifting “shape” of each company’s hierarchy. We focused on the top of the pyramid: after all, it is the CEO and other members of senior management who make the resource-allocation decisions that ultimately determine firm strategy and performance. Then, to dig deeper into how decisions are made in flattened firms, we complemented the historical data analysis with exploratory interviews with executives—what CEOs say—and analysis of data on executive time use-what CEOs do.

We discovered that flattening has occurred, but it is not what it is widely assumed to be. In line with the conventional view of flattening, we find that CEOs eliminated layers in the management ranks, broadened their spans of control, and changed pay structures in ways suggesting some decisions were in fact delegated to lower levels. However, using multiple methods of analysis, we find other evidence sharply at odds with the prevailing view of flattening. In fact, flattened firms exhibited more control and decision making at the top. Not only did CEOs centralize more functions, such that a greater number of functional managers reported directly to them (e.g., CFO, CHRO, CIO); firms also paid lower-level division managers less when functional managers joined the top team, suggesting more decisions at the top. Furthermore, CEOs report in interviews that they flattened to “get closer to the businesses” and become more involved, not less, in internal operations and subordinate activities. Finally, our analysis of time use indicates that CEOs of flattened firms allocate more time to internal interactions. Taken together, the evidence suggests that flattening transferred some decision rights from lower-level division managers to functional managers at the top. Flattening is associated with increased CEO involvement with direct reports—the second level of top management—suggesting a more hands-on CEO at the pinnacle of the hierarchy.