As the global economy has evolved and competitive dynamics have changed, the organizational structure of many companies has become flatter. While this shift has facilitated economic growth and cross-functional innovation and problem solving, it has also created unique corporate challenges. Without agreed decision-making procedures and values, horizontal decision-making can become inefficient, cause companies to drift and lead to decisions that are not in a company’s best overall interests. This article discusses shifts that have occurred in company organizational structures and suggests steps that companies can take to convert horizontal work environments into decision-making advantages.

The Tilt from Vertical to Horizontal Organizational Structures

Company organizational structures have evolved over time. In the corporate organizational form that took shape during the industrial age, companies tended to be defined by several characteristics:

• a hierarchical, pyramid-like structure with multiple management layers and a clear chain of vertically structured oversight
• functional specialization, where different departments had separate, generally non-overlapping responsibilities
• clearly defined divisions of labor within individual work departments
• formalized work policies, procedures and methods
• extensive bureaucracy.

Over time, due to several factors organizational structures have become significantly flatter.

Globalization and Competitive Pressures. As business operations have increasingly expanded across borders, to remain profitable and competitive businesses have needed the ability to quickly react to local market opportunities and challenges, which can be very different from market to market. Flatter organizational structures in international companies, which often delegate significant decision-making authority to employees in individual markets rather than concentrate it in a single geographic area, tend to increase corporate agility.

Technological Advances. Technological advances, including the rise of digital commerce and the availability of many types of organizational tools that facilitate collaboration and communication, have made it much easier for information to be shared in real-time through all levels of an organization. This has created shared information location points and tended to remove vertically structured information silos.

Increasingly Fluid Matrix Management Structures. In modern corporations, many employees wear multiple organizational hats, use their skills to solve many types of problems and often have several reporting lines across an organization. The replacement of rigid organizational structures with more fluid employee relationships that prioritize problem-solving has effectively flattened organizational structures.

Customer-Centric Trends. As markets have become more and more competitive, providing high levels of service is a critical organizational imperative. This requires giving people in customer-facing roles more decision-making authority so they can quickly react to customer issues and take advantage of new potential business opportunities.

Rise of Smaller Companies. The increasing size of markets, the lowering of barriers to market access and the proliferation of tools to allow companies to do business have created unprecedented business opportunities for smaller companies. Smaller companies tend to have flatter organizational structures than larger ones.

Work Expectations and Work Environment Shifts. Partly due to generational shifts in workplace expectations, many people increasingly prefer to work in collaborative work environments where they have a meaningful say, not only with respect to their immediate job responsibilities, but also in larger issues that affect the firm. These expectations have been accompanied by the rise of remote work options and flat communication frameworks. This flattening of operational realities has also contributed to a reduction in organizational verticality.

Decision-Making Shifts

The transformation of organizational structures has also affected decision-making. Vertical decision-making structures are often characterized by several elements:

• top-down decision-making, where decisions were made by senior executives and carried out by the relevant departments in the firm
• centralization of decision-making authority at the top of the firm, with little or no decision-making authority at non-senior firm levels
• decision-making tends to be highly bureaucratic in accordance with rigid rules and procedures.

Decision-making authority in horizontal firms, on the other hand, is characterized by very different dynamics. In this type of firm, decisions:

• can be taken at multiple firm levels
• are often characterized by input from several horizontal and vertical directions
• are often made by consensus rather than deference to an organizational hierarchy.

Horizontal Decision-Making Challenges

Several challenges can arise in horizontal decision-making environments.

Decision-Making Implications. In a vertical decision-making environment, the relationship between a company’s overall strategy, market position and the issue to be decided is clearly understood. In a horizontal company, many people involved in decisions may not have this knowledge. This can lead to decision-making, while sensible for immediate decision-making participants, may not be in the best interests of the entire firm.

Issue Framing Competition. In vertical decision-making environments, issues to be decided are generally very clearly framed. In a horizontal decision-making environment, different departments are often likely to frame issues in different ways. For example, the business strategy team may focus on the long-term value creation capability of a particular initiative while the accounting department might focus on short-term cost. Skewed decision-framing can lead to organizationally skewed decision-making outcomes.

Decision Time Frames. In a vertical decision-making environment, decisions are the result of an agreed process where multiple decision-making processes are coordinated and integrated. In a horizontal decision-making process, decision-making mismatches may occur that negatively impact the ability to make other decisions.

Unclear Decision Responsibility. In a horizontal environment where decisions are made by multiple departments, it may not be clear who is responsible for carrying out the decision after it is made. This has ramifications not only for firm employees but also people who interact with the firm, such as business partners and clients.

Firm Politics. In a highly flat organizational environment, some departments or groups of people may exercise more influence than others with respect to items to be decided. These people may not, however, for different reasons, be the best persons to make the decisions.

Steps to Improve Decision-Making in Horizontal Firms

The following are some steps that horizontal companies can take to improve their decision-making.

Share the Executive Vision. For a horizontal decision-making environment to work well, all people in the firm must be aware of the companies, vision, mission strategy plan and current situation. This means that senior management must create an inclusive, information sharing environment so that individual decisions are taken with a view of the large corporate strategic and operational context.

Create Decision-Making Committees. Rather than a strict vertical framework or a decision-making approach that is completely open-ended, companies can strive for a balance that includes committees comprised of different functional areas. For example, a committee could be comprised of a representative of the business department and the legal department. Companies can also strategically deploy senior firm members to participate in these committees or review committee decisions once they are made.

Frame Issues Carefully. To improve the decision-making process, care should be taken to make sure issues are properly framed rather than emerging ad hoc from issue discussions. As a complement to this, information relevant to decisions should be distributed prior to meetings so that it can be carefully reviewed.

Define Decision-Making Principles. Even if the decisions are taken in flat organizational structure, decisions should be taken based on clear principles. These principles could include:

• ensuring that decisions reflect firm values
• making sure that people have the opportunity to voice their opinions
• having the ability to check with internal or external experts or parties, if necessary, to make the best decisions possible.

Set Forth Responsibilities. There should be a clear indication of the steps that will be taken to carry out a decision, who will be responsible for those steps, and what the timeline will be for completing those steps.

Create a Clear Reporting Framework. To foster transparency, decisions made horizontally should also be reported to senior management so that there an understanding of the decision that was made and the steps that will be taken to implement the decision.

Continuously Review and Improve the Decision-Making Process. Just like any decision-making structure, a horizontal decision-making framework should also be continuously reviewed and improved. This review should include comparing decisions with the larger strategic goals of the firm and considering whether those decisions are advancing those goals.

Conclusion

Horizontal decision-making environments can broaden the decision-making process and help companies respond in agile ways to business opportunities and threats. While horizontal decision-making practices have advantages as well as disadvantages, if they are designed and implemented properly, they can create organizational efficiencies and build corporate value.

The photo for this article was taken by Josh Mills and is available on Unsplash.