Management

4 Considerations When Determining the Best Leadership Structure for Your Business

How owners organize the management of a small business has a huge effect on internal and external growth. The question is, which leadership structure works best?

By nature, startups tend to start off with a horizontal structure, which follows an employee-centered approach -- fewer management layers with a wide span of authority. On the other hand, as small businesses grow, many adopt the traditional vertical structure, defined by an organizational hierarchy with strong management and subordinate employees.

At ClearCompany, we maintain a fairly horizontal structure and strive to empower employees at every level to be independent and entrepreneurial. We strongly believe in the power of transparency. We’ve found that sharing more information with our team allows them to make strategically-driven decisions that, in turn, enhance performance.

Related: How to Develop Your Management Style and Assemble the Best Team

There’s no right or wrong way to structure a company’s leadership. Whether to go with a horizontal or vertical leadership model depends on a number of things, from company vision to size to the overall culture. Here are some pros and cons of each structure to consider, when determining which management style will drive business success:

1. Top-down vs. side by side

Vertical and horizontal leadership structures take very different approaches to decision-making. Because vertically structured organizations have a chain of management, decisions usually take a top-down approach, with major decisions occurring at the top of the chain. For larger organizations, taking a top-down approach when making important decisions can sometimes be easier than waiting for everyone to give their two cents.  

The comprehensive nature of the horizontal structure lends itself to teamwork. Rather than following a hierarchy, this side-by-side model of leadership takes down the structural walls to include everyone in the decision-making process. Since the chain of command in a horizontal organization is small -- or even only one layer -- decision-making is often faster and more effective. This is especially true for smaller businesses or companies just starting out.  

2. Defined vs. shared

The vertical leadership structure implements an organizational hierarchy based on clearly defined roles. Employees can easily recognize the chain of command and reporting relationships within the company. The CEO sits at the top of the organizational ladder and delegates authority to lower-level managers who then manage employees through clear lines of authority. In short, there’s no room for confusion when determining who to report to.   

A common frustration with the horizontal leadership structure is that employees don’t always know who to report to because so much responsibility is shared across the organization. A flat organization makes it easier for employees to see how their work efforts contribute to the bigger picture, but employees may be less sure about their roles within the company, and project leads can become frustrated by their lack of authority.

Related: How Poor Management Creates Zombie Employees (Infographic)

3. Need-to-know vs. transparent

One of the biggest differences between vertical and horizontal leadership structures is the level of transparency within the organization. Companies that are vertically structured are more likely to share information on a need-to-know basis. Additionally, because vertical companies have so many layers of management, it’s easy for information to get muddled as it’s passed down the corporate ladder.

Horizontal leadership structures, on the other hand, encourage transparency across all aspects of business. Taking down the structural walls helps streamline communication and collaboration within the workplace -- and boosts employee morale in the process.

Transparency is a natural characteristic of employee-centered organizational structures. For structures based on established hierarchies, a company is as transparent as management makes it.   

4.  Us vs. them

How do employees feel about each of these organizational structures? The traditional vertical leadership model, commonly seen in larger organizations, can create an “us versus them” feeling in a company, as managers and employees are on very different levels.

The horizontal leadership structure eliminates that feeling by placing more importance on skill proficiency than management hierarchy, so less division exists between upper management and employees.

However, vertically structured companies promote more individual growth, as employees have an opportunity to climb the corporate ladder. Flat organizations don’t always have much room for upward mobility, although employees can develop professionally through training and experience.

What do you think? How does your company structure its leadership? Share in the comments section below!

Related: For More Results, Make the Switch to a Minimalist Managerial Style