THE BLOG
10/17/2012 06:28 pm ET Updated Dec 17, 2012

America's Innovative Companies Are Going Flat

The traditional company hierarchy (where executives oversee managers who oversee staff), which has dominated the American workplace for centuries, is beginning to go out of fashion. As we shed a manufacturing past for a digital future, many U.S. companies have come to embrace a flat corporate structure, one that does away with middle management -- or, sometimes, management altogether. Since the 1980s, studies have shown that the number of levels between CEOs and their lowest-level managers has dropped.

Valve Corp., a video game development company, has been "boss free" since 1996. Each employee's pay is determined by their peers, and instead of promotions there are simply new projects to tackle. The company's 300 employees even put their desks on wheels, making it easier to move around the offices for collaboration and meetings. Companies young and old, big and small have embraced this concept. W.L. Gore, maker of Gore-Tex, was founded in 1958 and uses a "lattice" management structure, its 10,000 employees working without bosses and instead with the goal of gaining their peers' respect. 37signals, a Chicago software company, values "horizontal ambition" -- employees digging deeper, expanding their expertise and knowledge -- over "vertical" ambition, which can lead to toxic relationships between labor and management. The company has grown to 26 employees (as of 2011) while only losing a handful over the years to people who could not adjust to the rare model.

Another notable example of a completely hierarchy-free company is Ciplex, a full-service interactive and marketing agency that builds websites and SEO campaigns for some of the world's biggest brands. Based out of Los Angeles, Ciplex operated for years as a structured agency with upper and middle management layers. But earlier this year, founder Ilya Pozin took the advice of a project management consulting company and removed project managers, upper management and even the CEO he had hired -- instead grouping employees into teams without bosses.

Without the various company departments and individual titles of years past, Ciplex employees lead and manage themselves. Team members (comprised of developers, designers, writers and marketers necessary to complete a project for a client) now work closely with one another, keeping everyone involved in the process and aware of what each member is doing. Team goals, which are tied to customer satisfaction and company revenue, are now what drive the employees. Rather than an "I put in eight hours today, I'm done" workplace, Pozin says Ciplex has become a "my team needs to finish this, and I'll do whatever it takes" workplace. While some employees had a hard time adjusting to the new culture (and were subsequently let go), those who remain are dedicated to the cause.

Ciplex maintained revenues while cutting 25 percent of their costs (all of which were in management). Project timelines were cut by over 60 percent, as projects that used to take six months now take as little as six weeks. Thanks to the removal of the bureaucratic red tape that bogs down many companies, Ciplex is able to respond promptly and effectively to customers' feedback and questions. And those who were once managers -- including Pozin -- can instead focus on finding new efficiencies and helping the company grow, allowing them to work "on" the business instead of "in" the company. The flat hierarchy means greater profit for the company, quicker and more professional output for the clients, and greater satisfaction among employees and business owners alike.

Of course, like any system, a flat hierarchy isn't perfect and requires self-correction. Poor performances can be difficult to identify, and some people are too attuned to the traditional structure to manage themselves effectively. 37signals and Valve both have had cases of resistance to their innovative models. At Ciplex, teams are able to "vote off" ineffective team members -- a firing process that is more akin to the "Survivor" TV show than the typical human resources routine. This reinforces the idea that people, if given the opportunity, can be good managers of their own time and resources.

And though self-motivation and (at least some) selflessness are requirements for working at these companies, the benefits for the employees far outweigh the potential consequences. The ability to manage their own workdays, "move up" in a company with fewer layers of middle management (mostly by improving their own skills and increasing their stature within the company), and complete projects quickly and effectively without waiting to hear back from various company departments, all spell a higher level of satisfaction and efficiency among these unique (non) corporate trailblazers.

The top-heavy hierarchy is so ingrained in the American psyche that doing things differently means changing the way people think about work. New and old companies alike fall into the same pattern as their predecessors and peers, with little thought for whether or not that old structure helps to honor that golden rule of business: "The customer comes first." Companies like Valve, 37signals and Ciplex have taken the road less travelled by, which seems to be helping that famous line at the bottom.