Governance of businesses generally consists of two structures: hierarchical (pyramid) or nonhierachical (flat). Can it be determined that one structure is more conducive to effective decision-making than the other?
The hierarchical structure is the traditional legal governance structure of the corporation. That structure creates an overall executive officer (president or chief executive officer), a vice president, secretary, and treasurer. Other officers are added to the structure for administration of other common departments such as human relations and technology. Below the officers in the structure are managers who are charged with operations and report to the officers. This structure may be multilayered and quite complicated.
Nonhierarchical structures generally use teams, where each team has a responsibility or project. Team members are encouraged to self-direct and to be innovative. There are few levels of authority. Multiple teams can make organization and coordination of teams difficult. Advocates of nonhierarchical structures believe the structure makes businesses more adaptable and able to act quickly. Examples of businesses using a nonhierarchical structure are Google, Zappos, Altassian, and Netflix.
Because I advocate dynamic planning (utilizing a plan format providing immediate communication of decisions among involved parties) and involving a group as a part of the decision-making process, often it is assumed that I prefer a nonhierarchical structure.
With the question being is one structure generally better than the other, my answer is no. Either structure can produce excellent decision-making results. In certain circumstances, one structure might be better suited than the other, but it cannot be generally stated that with respect to decision-making one will produce better results than the other.
Business planning, whether strategic (long-term) or operational (short-term) is a series of decisions. Consistently good decisions lead to business success. For the best decision-making process, a small group of diversely informed individuals should aggregate their judgments and provide that wisdom to the persons with authority charged with making the decisions that create the plan. This group should be formed to include the elements of diversity, independence, and decentralization. This use of a group does not mean that the group has the authority to make the decision. In the ideal group decision-making process, even though there is use of a group to understand the decision to be made, the decision is made by an authorized person taking responsibility for the decision.
Implementation of a business plan is the communication of the decisions made and the taking of action on those decisions. The dynamic business planning process is one where documentation of the decisions is sufficient to provide a format for corrections. This might be as simple as a spreadsheet or as complicated as a custom software program. Once the plan is documented and communicated, those making decisions should constantly question goals, change actions, identify new mileposts, and revise the documentation and accomplish communication to all charged with execution of the plan. Once this process starts, planning is not a separate activity, but becomes a series of seamless and constant activity – the way in which business decisions in the form of plan revisions are communicated throughout the business, actions are taken on those decisions, monitoring is done on the actions, and the plan revised.
Decision-making is not unlike driving a car. The initial route is critical, but many times the decisions made along the way are what makes possible arriving at the destination safely and on time.
In any given business circumstance, to the extent the structure enables dynamic planning – communication of the decisions revising the plan – the more effective that structure will be.
The challenge presented by the nonhierarchical structure is that of authority and accountability. It needs to be understood who is responsible for making the decision, understanding when it should be revised, and communicating the revision. While the teams structure can be more conducive to innovation and creativity, the relationships between teams can become complex and orientation to specific goals difficult. If the business consists of silos of separate activity, it will be difficult to define and reach overall business goals.
Traditionally, the weakness of the hierarchical structure is the lack of direct communication from the bottom of the pyramid to the top and back down. Decisions are often made without the direct input of those who will be executing the actions to realize the goals of the planning. Once decisions are made, those at the lower levels of the pyramid are often not informed about the decisions.
No matter the structure, the decision-making policy should require there be a person authorized to make the decision. That person must assemble the group, obtain the information to make the decision, and make the decision in a timely manner. The decision must be documented as a part of a plan on a format that allows immediate communication to all affected parties throughout the governance structure. Whether the authorized person is called a team leader or an officer makes little difference as long as the plan is effectively communicated to all involved parties.
Either structure can support an efficient decision-making policy and a resultant successful business plan. To be successful the structure must provide designation of authority to make decisions and a dynamic plan format allowing documentation of the decisions on a format allowing immediate communication of corrections. This will provide the constant questioning of goals, selection of actions, identification of mileposts, and determining revisions to the plan as a series of seamless and constant activity leading to business success.