UPS management feels that one of the main advantages provides to the company is structure

There are a number of factors that differentiate small-business operations from large-business operations, one of which is the implementation of a formal organizational structure. Organizational structure is important for any growing company to provide guidance and clarity on specific human resource issues, such as managerial authority. Small-business owners should begin thinking about a formal structure early in the growth stage of their business.

Guidance from Organizational Purpose

Organizational structure provides guidance to all employees by laying out the official reporting relationships that govern the workflow of the company. A formal outline of a company's structure makes it easier to add new positions in the company, as well, providing a flexible and ready means for growth.

Significance of Formal Structure

Without a formal organizational structure, employees may find it difficult to know who they officially report to in different situations, and it may become unclear exactly who has the final responsibility for what. Organizational structure improves operational efficiency by providing clarity to employees at all levels of a company. By paying mind to the organizational structure, departments can work more like well-oiled machines, focusing time and energy on productive tasks. A thoroughly outlined structure can also provide a roadmap for internal promotions, allowing companies to create solid employee advancement tracks for entry-level workers.

Flat Organizational Structure

There are relatively few layers of management in what is termed a flat organizational structure. In a flat structure, front-line employees are empowered to make a range of decisions on their own. Information flows from the top down and from the bottom up in a flat structure, meaning communication flows from top-level management to front-line employees and from front-line employees back to top management.

Tall Organizational Structure

There are numerous layers of management in a tall organizational structure, and often inefficient bureaucracies. In a tall structure, managers make most operational decisions, and authority must be gained from several layers up before taking action. Information flows are generally one-way in a tall structure – from the top down.

Other Organizational Considerations

It is common for small businesses to lack a solid organizational structure. All employees in startup companies can be required to perform a range of tasks outside of their official job descriptions, and a good number of employees in startups have generous leeway in making decisions. Aside from that, all employees in a startup generally know who they report to, since it is usually a single person or group – the owner or partners. It is very important to have a formal organizational structure in place before your company grows so large that your unstructured workforce becomes unwieldy.

You’re the boss. Maybe you just became one for the first time or maybe you’ve been managing people for a long time. Either way, whether you’re leading an entire organization or just a team or two, you now have the power, and responsibility, to make decisions and be accountable. 

Your team is looking to you, literally staring at you, for guidance on what to do next.

What do you do? 

Do you start handing out clearly defined tasks with explicit guidelines, deadlines, and steps so that all your employee has to do is execute your plan? After all, you know what needs to be done. If everyone executes as directed, your plan will work and your vision will be realized, and you’ll achieve good results. 

Or, do you start asking questions to understand what people are working on, what challenges they see, and let them define the priorities? The team is closest to the work, after all, and probably has insight into what is or isn’t working. If everyone does what they think is best, their plans should come together and achieve good results. 

These two choices for management represent extreme examples of two approaches, and accompanying mindsets, for managing: top-down management or bottom-up. 

The cliche of the boss-as-tyrant or boss-as-benevolent dictator or boss-as-all-knowing is prevalent for a reason. Most of us are used to top-down management — the traditional approach. The leadership team sets the company’s direction and major projects, and everyone else executes the plan. At the extreme, the employees execute tightly-specified tasks as quickly, consistently — and robotically — as possible.  

Bottom-up management is the opposite — ideas about upcoming goals, projects, and vision are funneled up by the teams and individual contributors. This allows more room for feedback and discussion. Bottom-up management first came about in software development to help teams implement user feedback into the product and to quickly work on iteration after iteration. At the extreme, employees are free agents, following their own direction and optimizing for their own interests. 

Both approaches have advantages and disadvantages. In reality, most managers and organizations will fall somewhere on a spectrum between the two. At the same time, it’s useful to understand the underlying mindset and beliefs, as well as the limitations and what is required to succeed. We’ll dive into them below so that you can decide which one is right for your business. 

Top-down management

Often referred to as command-and-control, top-down management is often the default. In this hierarchical style of management, the power and decision-making generally remain with those at the top (though there might be some input from middle management). Information tends to flow slowly and only in one direction. It’s up to everyone else to implement the vision that’s determined by the leadership team. 

The top-down approach comes with several benefits. First, because the decision-making process is extremely centralized, it leaves little room for ambiguity. With the input of just a few people, it’s easy to provide clarity, and the message doesn’t get muddled or crowded with additional revisions and perspectives. A clearer vision is much easier to implement. 

And that implementation tends to happen quite quickly. Since there isn’t an opportunity to question, discuss, or provide feedback on the message coming from the top, the company saves valuable time by moving rapidly to the execution phase. 

One caveat here: Without the opportunity to hear any feedback, there’s a risk that management might make the wrong decision. Even if they already have a strong pulse on the organization, the needs of customers and the conditions surrounding how a company meets those needs are changing a lot faster now than they used to. A very hierarchical organization will struggle to respond quickly enough to address unexpected problems or pursue new opportunities. 

Company decision-makers also need to make sure they have the respect of other teams and a track record of acting in the company’s best interest. Top-down processing at a company where a new leader has just stepped in, or where there’s a management team who has been known to ignore the needs of other departments, provides fertile ground for problems ahead. 

Finally, in an overly prescriptive work environment where they are expected to execute like robots, people might not find the job satisfying. There isn’t a lot of room for growth and development, except for those chosen for management. Ultimately, the organization also isn’t benefiting from the range of insights or abilities the employees might have to offer. 

What companies use top-down management?

If you choose a company at random, there’s a pretty good chance that its approach to management is top-down, especially large organizations. If the company is in a heavily regulated industry or one with severe, irreversible consequences for mistakes, it’s even more likely. The financial sector, for example, has clear rules and strong repercussions when it comes to strategy, process, and execution, leaving little room for error. 

Generally, management has the clearest perspective on how to navigate these regulations. They understand the ins and outs of the sector and have the authority to make sure that all actions and communications are aligned to policy and legal requirements.  

The military has historically been used as the poster-child for command-and-control. Consider the classic drill sergeant scene: “When I say ‘jump,’ you say ‘how high?’” Interestingly, over the past two decades, the military itself has pioneered a less hierarchical, distributed, more agile form of management in response to the less predictable, faster-changing challenges they now face. 

Pros and cons of top-down management

Pros:

• Most likely to create alignment in the team’s overall goals
• Provides clear goals and expectations for the employees
• Employees are able to focus solely on their work

Cons:

• Discourages creativity and proactivity
• Can lead to unhappy employees due to lack of autonomy
• Employees may feel disconnected from the company’s values

Bottom-up management

You might hear about bottom-up management in the software development space or when talking about grassroots movements. Bottom-up management is about both casting a wider net and empowering employees at different levels of the organization. In this approach, the actions and vision for the wider company draw on input from employees across different levels. Teams and individuals have greater autonomy in how they approach the work and are likely to determine at least some of their own outcomes and priorities. 

This approach comes with its own set of benefits, not the least of which is greater employee engagement. When employees know that their voice is being heard and that they’re contributing to the company vision, they’re more motivated and more likely to connect more deeply with their work, showcasing higher levels of engagement and productivity. After all, their work was, in part, determined by them. 

The opportunity to provide feedback to leadership also adds value to the employee’s day-to-day work. It’s through their work and experience that they gain insight into which direction the company might take next. When management requests feedback, employees know that their learnings from their work experience hold value. A bottom-up approach emphasizes the fact that those who are out “in the field” every day can provide significant insights that management, from their perspective a bit higher up, might fail to notice. 

With this approach, organizations can also lessen the risk of surprising teams with any unexpected tasks or processes. Since the direction was set with the team’s input, it should have echoes of the problems and accompanying solutions that were funneled up through the feedback.

Bottom-up management also provides an opportunity to benefit from a diverse group of people across the company, many of whom will have unique perspectives on the business and new approaches to consider. Research has shown that teams and organizations are more innovative when they draw on more diverse perspectives and experiences.

Finally, bottom-up management can create more stretch opportunities for professional growth and development for everyone. Team members are more likely to stay relevant and up-to-date with skills that the company needs for the next strategy. 

The downside of bottom-up is that it can be difficult to dial in the right level of structure and guidance to give people. In addition, because authority isn’t centralized, figuring out who or if there is a signoff needed for a decision can be confusing. 

Generally, a completely hands-off approach to project management will be frustrating and ineffective, potentially leading to as much dissatisfaction as a strict top-down management approach. Starting from an assumption of trust, good intentions and competency doesn’t take into account the reality that many employees might need guidance and supported development to effectively tackle new challenges that they’ve never experienced. In addition, especially with larger organizations, team members and individual contributors might not have enough visibility into company goals or other workstreams to make informed decisions about where they should best focus their own efforts. 

What companies use bottom-up management?

Bottom-up management is commonly seen in start-ups. Often, start-ups have a smaller group of people working for them, which means that many voices can easily be heard and feedback can be taken into consideration. And because more nascent organizations are in quickly evolving industries, start-up employees are usually hired for their ability to take on the work that needs to be done, giving them autonomy to problem-solve and the power to step outside of their role to do so. 

This sense of autonomy offers employees both the ability to be innovative in their own role and to gain a good understanding of what they need from management in order to move forward. 

Journalism is an example of bottom-up management in a more traditional industry. Though the overall direction of the publication is set by those at the top, journalists are often responsible for finding their own stories and pitching ideas to editors. Grassroots movements are also, by definition, bottom-up, using the power of communities and individuals to press for change at the government level. 

Pros and cons of bottom-up management

Pros:

• Can lead to better engagement and productivity
• Employees are empowered to share valuable insights
• Team is often better aligned to the big picture and company values

Cons:

• May create disorganization and frustration
• Employees may be reluctant to share feedback
• Employees may derail the business’s mission with unrelated concerns

What is the countercurrent method, and how does it work? 

Both the top-down and bottom-up approaches have strengths and weaknesses. The countercurrent method attempts to eliminate the downsides by combining both approaches. You could think of it as a direction being set by executive leaders, with the front-line staff determining the best way to achieve each goal along the way.

The countercurrent method is bilateral, with team members sending their plans to the leader for approval before executing them. The big picture, long-term goals, and budgeting are managed and communicated to employees and staff. While this process can feel a little less direct than top-down management, it can actually be easier on large organizations. Each person can contribute within their individual departments, with strategy and vision created through the chain of management. This method can be highly effective, empowering employees to make decisions while managing growth at higher levels.

Which approach is best for you?

To get an idea of the approach best for your organization, it’s helpful to think of the current stage of your organization. 

If you’re growing and consider your company more of a start-up, it might be best to start with a bottom-up approach as you continue to learn more about the space and the industry from your employees. Plus, having fewer people makes it much simpler to take everyone’s views into consideration. If you try to employ a top-down approach in a start-up, people who originally had huge areas of responsibility might begin to feel stifled. It’s tough to feel empowered exploring new areas of opportunity with strong directives set from the top. 

If you work in a heavily regulated industry or a much larger company, consider a top-down approach. However, be sure that you have other means of getting a pulse on the company and its challenges so that management is not too separated from what’s happening on the ground. If you need to move quickly, a top-down approach can ensure that people can move swiftly from strategy to execution — so long as leadership truly understands the situation.

Keep in mind that as an organization evolves, its management style should evolve with it. As organizations grow, expand into different areas and new types of leaders arrive, the process of company goal-setting needs to be flexible to accommodate for these changes. 

Of course, these two approaches aren’t mutually exclusive. For example, there might be certain decisions that are best made at the top then filtered down and other areas where management might need to rely heavily on team feedback to make a decision. 

What’s most important is maintaining as much communication and transparency about why you are being more top-down or bottom-up in a decision-making process as possible. You don’t want to seem inconsistent, erratic, or as if you say one thing but do another. Feel free to combine elements of these two approaches until you find the right mix for your situation, your individual company and team goals, and your leadership style.

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