“Structure” is associated with large and well established firms that serve stable and mature markets.
Such firms need the clarity and predictability provided by roles, hierarchy, rules, procedures, and control systems. Innovation is not so important for such firms; efficiency is what counts.
Small firms, and in particular, start-ups, require a more fluid, agile, and flexible form in order to grow and succeed. Speed counts. Having a (formal) structure would slow things down. It would also hamper innovation, which requires freedom from constraints.
Sounds logical, right?
It is what students have been taught in business schools: Efficiency requires a “mechanistic “organization, while innovation and change require an “organic” organization.
Yet a growing number of studies is challenging this view.
Several empirical studies have been conducted on this topic. They have been published in well-known journals, and are based on data from hundreds of small, fast growing firms.
Let me mention the key findings from three studies (see references below).
The first study was conducted by Wesley Sine from Cornell University with two colleagues.
They looked at several indicators of formal structure, including the degree of formalization of roles, the degree of specialization among the employees, and the number of executives relative to employees (which they call “administrative intensity”). The data came from 449 internet start-ups.
Conclusion: The firms with more role formalization, more specialization, and more administration outperformed the others.
Another study collected data about 1411 Dutch firms. The findings are similar:
..we find hierarchical, centralized structures with strongly specialized employees to occur frequently and to perform well in terms of growth.
A third study is based on data from 2,431 high-tech start-ups in Germany. It considered the role of hierarchy, and introduction of middle managers more specifically.
The autors explain that entrepreneurs are usually reluctant to introduce middle managers, because they fear that it will lead to bureaucratization and less innovation.
Instead, they find that the opposite is the case. In fact, among these firms, hiring middle managers early increased the chance of launching product innovations by 33% (!).
So the answer seems clear: Small and innovative firms do need structure.
In his book “The unicorn’s shadow”, Wharton professor Ethan Mollick concludes:
…the founders that pay attention to the boring details of people and structure will succeed where others fail; a strategic focus on growing your team wisely is the most important thing you will do for long-term success.
You can find the studies referenced here:
Interesting premise of developing structure within startups. It’s one that I have been floating to some in the tech space for a few years. They meet it with moderate to strong resistance. In their minds, everything worth managing is automated by their engineers, so why is there a need for structure? Would love your take on this if you have one.
Hello Ash, thanks for your comment. I would refer to Ethan Mollick’s book again here, where he says (p. 67-68): “Startups tend to emphasize technical skills at the expense of middle management. This is a mistake, however, as managers can play a vital role in organizing the company and making it more successful”.
This is very true. I find startups wanting to operate without structure all the time. They ‘hustle’ to get work done, with the result that strategy, business design and work processes take a backseat.
I like this as the “move fast and break ” it culture has brought more disasters (Uber anyone, Facebook) . I am surprised that management is bad word these days , just because Taylorism is outdated, coordination at the very least is still needed.
If you look at the the newish “self organising ” org designs emerging they all appear to have heavy management functions, whether they call them circles or tribes or what have you.
We need to promote the social sciences before engineering outlook becomes the cultural norm