An organization's structure is one of the most impactful choices that a startup can make. Structure defines how power is held and exercised within a company. The differences between a horizontal structure and a vertical organization are considerable, but they each offer advantages and disadvantages.
Why Does Structure Matter?
Strip away the money, the jobs, the assets and everything else, and business comes down to the simple act of making choices. Choice and accountability are entirely what power structures are about. Who has control, where does the buck stop and who makes the critical decisions going forward?
What Is a Vertical Structure?
A vertical organization is the traditional business model of a CEO underpinned by managers and departments. It is a trickle-down concept of corporate power and responsibility that is bureaucratic and departmental in nature. Large corporations have historically favored the vertical organization, though things have changed in the last few decades.
The vertical structure begins with the CEO or president at the head of the company, and below him sits top-level management, which includes vice presidents and executive managers. Reporting to the top level is the middle management team, which includes more managers and maybe department heads. Below them are the low-level managers and supervisors who are directly in contact with average employees. At the bottom of the totem pole are employees, who may have seniority and experience that creates mini hierarchies among them.
Upsides of Vertical Structures
A vertical organization is truly structured. Departments know their role and their scope, and any veering beyond those lines will need approval, if not from the direct management then from someone else in some other department. This is key to keeping the company consistent and productive. It is also why vertical structures are all about accountability. Everyone knows who is calling the shots at any given time.
Vertical structures can easily be scaled, so when the company is growing, it is easy to increase personnel and add management. This is true across borders too.
Having a vertical organization can also mean better employee development. They understand their role and can easily pick up greater knowledge and expand their skill sets as time goes on. It is the perfect place for people who want to make a career of a job because in theory, there is upward mobility and the opportunity for advancement.
Downsides to Vertical Organizations
All those departments and managers can get in the way of progress. Decisions can be slow to happen because there could be multiple departments affected by each choice. This can also make vertical organizations more risk averse because of the defensive stance departments and managers may take in order to avoid having any possible failures blowing back on them.
The same thing that makes vertical companies beneficial to some employees is what can mean others never reach their potential simply because bureaucracy dictated that they belonged in the department that hired them rather than where they might shine brighter. Division management can become fiercely possessive of their personnel, and sometimes the company pays the consequences because people aren’t being used to their best ability. This is part of another struggle these organizations face because divisions can begin thinking that they are a separate entity from the firm, thus getting overly invested in their section’s profitability and performance to the detriment of the company as a whole.
Communication is a major sticking point in vertical companies because transparency is not a valued quality, as managers keep information from employees and departments keep secrets from each other. It can mean that brilliant ideas get lost in the shuffle as well as critical data and correspondence about projects getting tangled up between departments, thus hindering expedience.
What Is a Horizontal Structure?
More commonly called a flat structure, flat organization or even a “flatarchy,” the horizontal organization is one where democracy tends to rule the day. A CEO, president or founder will likely head the company, and then she'll possibly have one or a few managers under her or maybe no managers at all. Employees will experience more autonomy than at any other workplace, which allows them to cross train and work in a variety of roles if they like.
Communication is huge in horizontal organizations, and it is what allows for the loose, unstructured feel to the workplace. With the use of apps like Slack and Trello, it is possible for team-wide communications and universally accessible project management maps so everyone stays current on the day-to-day happenings and priorities. These organizational structures have been extremely popular with startups and digital companies such as game developers and the like because they encourage progress, ideas and openness.
Advantages of Horizontal Organizations
Where horizontal companies really shine is in how quickly they can act and move ahead. Decision making tends to happen speedily and with little bureaucracy. These companies tend to have a limited number of projects on which they work, which benefits from the unstructured, open environment since the entire team enjoys sharing information on where the project is and how it is going.
Without the classic structure of departments that create walls within a company’s work dynamic, employees are free to dabble in a variety of areas. This can lead to greater job satisfaction for those who have attention struggles, enjoy change or enjoy learning new tasks.
Creativity is another huge factor in the horizontal workplace because the entire team is generally encouraged to contribute ideas. Think of it as an ongoing, open form of brainstorming. This can mean growing new opportunities or diversifying their main projects quickly when the right idea comes along.
Disadvantages of Horizontal Organizations
Horizontal organizations can be the epitome of “too many cooks in the kitchen" since everyone has equality with his colleagues. There is seldom the guiding hand and framework that help guide employees in other firms. The purpose of managers elsewhere is to have experienced oversight to steer projects in the right direction and to avert disaster as well as to squash conflicts on their teams. Without managers, horizontal companies can suffer from infighting and disorder, but they can also have employees sailing rudderless without authority and oversight.
Another downside is how team members can be expected to work in varied roles and use different skill sets. This leads to the “jack of all trades, master of none” conundrum that can see people underperforming because their potential never gets fully realized.
Finally, as much as quick action and forward momentum can be a tremendous plus in companies, it can also lead to catastrophe. Sometimes, the slow and pragmatic approach is what keeps an organization from toppling over the cliff.
So, Which Style Is Best?
Vertical and horizontal aren’t the only games in town. Matrix organizations are increasingly popular for companies that have multiple streams of business where parties may need to report to more than one superior.
Ultimately, some say that a hybrid of these styles could be the best way to ensure a corporate culture that celebrates innovation and expedience while having the framework in place that gives experience, guidance and pragmatism a starring role in the company’s day-to-day activities.