“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:
Grimpe, C., Murmann , M. and Sofka, W. (2019). Organizational design choices of high-tech startups: How middle management drives innovation performance. Stratagic Entrepreneurship Journal, 13, 359–378.
Meijaard, J., Brand, MJ. & Mosselman, M. (2005). Organizational Structure and Performance in Dutch small Firms. Small Business Economics. 25, 1, 83-96.
Sine, W.D., Mitsuhashi, H. & Kirsch, D.A. (2006). Revisiting Burns and Stalker: Formal structure and new venture performance in emerging economic sectors. Academy of Management Journal, 49(1), 121–132.