As a business begins to grow, a clear structure will tend to emerge. Whether this is by design or evolution depends on management, but there are typically two distinct options: horizontal and vertical business structures.
While there are pros and cons to each, one model might work better for your business. Here’s what you need to know about horizontal and vertical business structures.Tweet This
What is a Horizontal Business Structure?
A horizontal business structure places fewer managers between top leadership and low-level employees. For example, a business owner may have two managers below her, with these people overseeing all the other employees. The organizational chart is close to flat, or horizontal.
Small businesses and startups often operate under this structure, primarily because there are a limited number of employees to manage.
What is a Vertical Business Structure?
In a vertical business structure, there are more intermediaries between the business owner/CEO and employees. The chain of command is usually clearly defined, and everyone understands their roles, responsibilities, and authority. A large business might prefer a vertical structure because it promotes protocol and accountability.
Both structures can have implications for your business, including:
Distribution of Workload
Since there are a limited number of managers in a horizontal business structure, they can become overwhelmed by an ever-expanding pool of employees. Managers may find themselves responsible for overseeing multiple departments, including areas where they have little first-hand experience.
The vertical business structure helps ensure that each manager understands the limits of his or her responsibilities. A human resources manager can handle hiring while the head of finance deals with billing.
Regardless of company size, some small business owners prefer a horizontal structure because they fear losing touch with day-to-day operations under a more distributed organization, though this is by no means a foregone conclusion.
With a vertical business structure, a clear process is in place for offering suggestions and making decisions. Each employee understands the proper protocol, and direct communication with upper- management is generally discouraged, except in extreme circumstances. While this can avoid conflicts over authority, it may cause employees to feel like they have a limited ability to influence the business. This can lower morale, which is never a good thing.
A horizontal business structure places every employee closer to leadership, and this may result in great ideas coming from unexpected places. Such an environment can be particularly important for a fledgling start-up. However, managers sometimes struggle to supervise a large group of subordinates. For this reason, horizontal structures are often criticized for hampering feedback and professional growth.
Innovation & Flexibility
If a business is in an industry undergoing rapid change or disruption, the ability to quickly evolve may make the difference between survival and bankruptcy. Many people feel that a horizontal structure provides this level of maneuverability. After all, you never know who will come up with the next profitable idea.
Conversely, vertical structures are often criticized for stifling innovation with bureaucracy. That being said, many of the world’s largest businesses manage to thrive under a vertical structure.
A Compromise on Management
Since both approaches have clear benefits and disadvantages, many businesses have found that some compromises have to be made in either approach. In a horizontal business, the emphasis should be on teamwork, with all employees working together to manage the workload. Management should have an open-door policy, strive to create job plans, and perform regular performance reviews on each employee to give the feedback necessary to be most effective within the organization.
A business under a vertical structure can overcome obstacles between employees and executives when the business owner or CEO stays personally involved in day-to-day operations. Regular meetings with middle management can help with this, but chiefs can also benefit from moving around the office and getting to know employees. While proper protocols are necessary to avoid chaos, top management can also employ an open-door policy to encourage employees to make contact with any feedback.
Whether your business chooses a vertical or horizontal approach, effective communication can make a difference in improving employee satisfaction and productivity. As a company grows, it’s important to regularly reevaluate the structure to see if any changes need to be made.
Not sure which specific business structure – LLC, S Corp, C Corp, etc. – is right for your business? Check out our business structure guide to help give you an idea. Be sure to consult with a lawyer before choosing a business structure.
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