Flat Organizations: Why They Fail and What Actually Works

Flat organizations are a promise: More agility. Faster decisions. Happier employees. Less bureaucracy. Reality often looks different.

A study with 81 citations, published in the Strategic Management Journal, carries the telling title “The myth of the flat start-up.” The researchers found: flatter structures improve idea generation and creative success. But they also lead to “haphazard execution” and can overwhelm employees with decision-making responsibility.

The problem is not the idea of flat structures. The problem is the misunderstanding of what “flat” should mean.

This article explains why flat hierarchies fail, what research shows, and which alternatives actually work.

The Promise of Flat Organizations

The arguments for flat hierarchies sound compelling:

Faster decisions: Without long approval chains, teams can respond more quickly. Information does not have to travel through multiple management levels.

More innovation: Employees can implement their ideas directly instead of waiting for permission. Creativity is not stifled by hierarchy.

Higher satisfaction: People want autonomy. Flat structures give them more control over their work.

Lower costs: Fewer managers means less overhead. The saved salaries can be invested in product or employees.

Better communication: Without hierarchy barriers, information flows more freely. Silos are dismantled.

These arguments are not wrong. But they tell only half the story.

Why Flat Organizations Fail

The Coordination Problem

Hierarchies exist for a reason: they solve the coordination problem. When many people work together, they need mechanisms for alignment. Traditionally, managers take on this function.

When managers disappear, the coordination problem does not. It just shifts.

In flat organizations:

• Everyone must coordinate with everyone
• The number of communication channels explodes
• Decisions take longer because consensus must be found
• Unclear responsibilities lead to duplicate work or gaps

Research Insight: The complexity of coordination grows quadratically with the number of participants. A team of 5 has 10 possible communication relationships. A team of 10 has 45. A team of 20 has 190. Without structuring, this complexity becomes unmanageable. (Source: Organization Theory, Brooks’ Law)

The Hidden Hierarchy Problem

A central finding from our analysis of 655 research papers: Hierarchy does not disappear when you abolish it. It just hides.

Studies consistently document:

Informal hierarchies emerge: Expertise, charisma, and social capital create new power structures. These are often less transparent and harder to address than formal hierarchies.

Influence networks persist: Even without formal reporting lines, communication and influence networks form. Some have more influence than others.

“Shadow hierarchy” documented: Multiple studies show how informal hierarchies emerge in nominally flat organizations, undermining the formal structure.

The problem: Informal hierarchies can be more problematic than formal ones. They are less transparent, harder to question, and often less fair.

The Decision Problem

Flat hierarchies delegate decisions downward. That sounds good, but:

Not everyone wants to decide: Some people work better with clear guidelines. Autonomy is a burden for them, not liberation.

Not everyone can decide: Decisions require information, context, and competence. When these are missing, decisions are poor.

Consensus is slow: When everyone must co-decide, decisions take time. In dynamic environments, this is a competitive disadvantage.

Responsibility becomes diffuse: When everyone is responsible, no one feels responsible. This leads to procrastination and blame.

The Scaling Problem

The “The myth of the flat start-up” study shows: flat structures can work in small teams. Beyond a certain size, they break down.

The thresholds:

Team Size	Typical Challenges
5-10	Flat often works well
10-30	Coordination becomes harder
30-100	Without structure, chaos or informal hierarchies emerge
100+	Flat is practically unmanageable

Why: With growing size, complexity increases exponentially. The cognitive limits of individuals are no longer sufficient to oversee all dependencies.

What Research Shows

Creativity vs. Execution

Research shows a differentiated picture:

Flat structures improve:

• Idea generation
• Creative success
• Employee engagement (in certain groups)
• Speed for simple decisions

Flat structures worsen:

• Commercial execution
• Coordination for complex projects
• Clarity about responsibilities
• Consistency of results

The implication: Flat structures are not generally better or worse. They are better for some tasks and worse for others.

The Personality Question

A comparative study with 95 employees in self-organized companies shows: success strongly depends on personality.

People with high openness (Big Five personality trait) show better person-organization fit in flat structures. They report fewer “illegitimate tasks” and higher satisfaction.

People with high need for structure struggle in flat structures. They feel lost without clear hierarchies and instructions.

The implication: Flat structures work for some people, not all. An organization must consider this.

The Industry Question

Research shows different results depending on industry:

Industry	Suitability for Flat Structures
Tech/Software	Higher
Creative/Media	Higher
Consulting	Medium
Healthcare	Medium (Buurtzorg as exception)
Manufacturing	Lower
Highly regulated (Finance, Pharma)	Lower

Why: Industries with high knowledge work and low standardization benefit more from autonomy. Industries with high compliance requirements need more structure.

What Actually Works

The solution is not “more hierarchy” or “less hierarchy.” The solution is better structure.

Structured Self-Organization

The term sounds like a contradiction. It is not.

Structured self-organization means: clear rules for decision-making without those rules requiring managers. Autonomy within defined boundaries. Distributed authority with explicit accountabilities.

Examples of frameworks:

• Holacracy: Roles and circles instead of job titles and departments. Governance processes instead of manager decisions.
• Sociocracy: Consent-based decision-making. Double linking between circles.
• Sociocracy 3.0: Modular patterns that can be introduced individually.

The common denominator: These frameworks do not eliminate structure. They replace hierarchy-based structure with process-based structure.

Holacracy as Example

Holacracy is often misunderstood as “no hierarchy.” This is wrong. Holacracy is hierarchy redesign.

What Holacracy eliminates:

• Managers as decision-makers
• Fixed job titles
• Centralized control

What Holacracy maintains:

• Clear responsibilities (roles)
• Coordination mechanisms (circles, links)
• Escalation paths (Rep Links, governance)
• Defined decision processes (IDM)

What Holacracy transforms:

• Hierarchy of people to hierarchy of circles
• Authority from position to role
• Decisions from manager to process

Research Insight: Our analysis of 14 research papers on hierarchy in self-organization shows: 10 claim Holacracy eliminates hierarchy. 4 document how informal hierarchies still emerge. The reality lies in between: Holacracy transforms hierarchy, but does not completely eliminate it. (Source: SI Labs Meta-Study, 2026)

The Difference from “Flat”

Aspect	Flat Organization	Structured Self-Organization
Decision rules	Unclear or “everyone decides”	Defined through governance
Coordination	Ad-hoc	Through circles and links
Accountabilities	Diffuse	Explicit in roles
Conflict resolution	Informal or escalated	Governance process
Adaptation	Chaotic	Through defined processes

When Does “Flat” Work?

Flat structures without a formal framework can work under certain conditions:

Small team size: Under 10 people, where everyone can communicate with everyone.

High maturity: All team members are experienced, independent, and strong communicators.

Simple tasks: The work requires little coordination between people.

Shared culture: Strong shared values and implicit understanding.

Temporary duration: Project teams that dissolve after completion.

If these conditions are not met, a structured framework is recommended.

The Decision Matrix

Which structure fits your organization? This matrix helps with orientation:

Factors for More Structure

• Size: More than 30 employees
• Complexity: Many dependencies between teams
• Regulation: Compliance requirements
• Stability: Long-term organization, not temporary project
• Heterogeneity: Different personalities and preferences

Factors for Less Structure

• Size: Under 10 employees
• Autonomy: Teams work largely independently
• Creativity: Innovation more important than consistency
• Temporality: Project team with defined end
• Homogeneity: Similar ways of working and values

The Recommendation

Situation	Recommended Structure
Small, mature team (< 10)	Can work flat
Growing startup (10-50)	Light structure, e.g., Sociocracy 3.0 patterns
Medium-sized company (50-500)	Formal framework like Holacracy or Sociocracy
Large organization (500+)	Structured self-organization with strong governance

Practical Steps

If you want to move from flat structure to structured self-organization:

Step 1: Diagnosis

• Where do coordination problems arise?
• What informal hierarchies exist?
• Which decisions are unclear?
• Where is there duplicate work or gaps?

Step 2: Framework Choice

• Which frameworks fit your culture?
• How much structure do you need?
• What resources can you invest?

Step 3: Pilot

• Start small
• Learn from practice
• Adapt

Step 4: Scaling

• Expand gradually
• Maintain training and support
• Reflect regularly

Conclusion

Flat hierarchies are an attractive concept with real limits. Research shows:

Flat structures can work for small, mature teams with simple coordination requirements.

Flat structures often fail for growing organizations, complex projects, and heterogeneous teams.

The alternative is not more hierarchy, but better structure. Frameworks like Holacracy or Sociocracy offer structured self-organization: autonomy with clear rules.

The central insight: The opposite of hierarchy is not chaos, but different structure. Anyone who wants to abolish hierarchy must put something in its place. Otherwise, either chaos or informal hierarchy emerges, and both are worse than the original.

At SI Labs, we have practiced Holacracy for over ten years. Our experience confirms the research: it is not about less structure, but better structure. The right structure enables autonomy and coordination simultaneously.

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This is part of our series on self-organization. Further articles: Holacracy: A Practitioner’s Guide, How Holacracy Succeeds, Why Holacracy Fails.

The research findings in this article come from our analysis of 655 academic papers on self-organization and Holacracy. Particularly relevant was the study “The myth of the flat start-up” (Strategic Management Journal, 2021) with 81 citations.