Takeaways:
- In recent years, many companies have reduced layers of hierarchy, creating a “flatter” organizational structure in order to create efficiencies
- A new study from the UBC Sauder School of Business shows flatter companies also win more customers and funders, and better responses to advertising
- Consumers see companies with more horizontal structures as more egalitarian and warmer
- The effect isn’t universal: people who reject egalitarianism or have staunch right-wing views do not prefer flatter companies
- The study is the first of its kind to look at how flatter organizational structures affect consumer choices
- Given the effect, companies that opt for flatter structures might want to mention their approach in their marketing
In recent years, companies large and small have started opting for a flatter structure — that is, fewer layers of middle management — to become more efficient and facilitate growth.
But according to a new study from the UBC Sauder School of Business, companies aren’t the only ones seeing the benefits: It turns out consumers also prefer flatter companies — and businesses that don’t publicly communicate that shift could be missing out.
For the study, titled Why Horizontal Organizations Don’t Fall Flat: Organizational Structure Shapes Perceptions of Egalitarianism and Company Warmth, researchers examined consumer reactions to flatter companies through several experiments.
In one, participants were divided into two groups, and learned about one of two versions of a chocolate company — one that was less hierarchical, and one with a more traditional top-down structure — then were given the opportunity to purchase up to six pieces of chocolate with their own money. The researchers found that, on average, the participants who viewed the flatter company purchased more chocolate.
In another experiment, participants were once again divided and given the opportunity to contribute to a company’s crowdfunding campaign using their own money. Again, consumers who were told the company had a flatter structure tended to give more.
What’s more, when shown Facebook ads that highlighted a company’s more horizontal structure, participants were more likely to click on the ad.
In order to help explain the effect, researchers also looked at how organizational flatness affected customers’ perception of a company’s warmth and competence — two key measures that consumers use when evaluating companies. They found that flatness didn’t affect customers’ perception of competence, but it significantly boosted the sense of warmth.
“Consumers think the company is more cordial, friendlier and more communal, because consumers infer that flatter companies foster relational egalitarianism — which means more equal interpersonal relationships with fewer power disparities,” explains UBC Sauder PhD student Guanzhong Du, who co-authored the study with UBC Sauder Dean Darren Dahl and UBC Sauder Professor Katherine White. “That is the mechanism that drove the effect.”
Still, not all customers prefer flatter management structures: the researchers found that people who don’t like the idea of egalitarianism, or those with staunch conservative views, had less favourable views of companies that embraced a more horizontal structure.
“The effect is reversed among people with very conservative political ideologies. They wanted a clear, well-established hierarchy in a company,” says Du. “When those people learned that the company was flat, they actually had lower purchase intentions.”
Many studies have examined the impact of different organizational structures on companies, but the UBC study is the first of its kind to explore how flatter structures affect consumers’ views, and ultimately, their choices. It also highlights their preference for companies with egalitarian structures.
Among the many businesses that have gone more horizontal are Meta (the parent company of Facebook and Instagram), video game developer Valve, footwear retailer Zappos and software company Punchkick.
Du says that, as a result of the findings, companies that reduce layers of hierarchy may want to mention the move in their messaging, because it could boost their bottom lines.
“Many features of companies that people think are merely operational details can actually influence consumer behaviour in meaningful ways,” explains Du. “Branding is all about differentiation, and how your company is different from other companies — but that’s becoming difficult because industries are so crowded. For companies that adopt a flat structure, communicating that to consumers could be something they can leverage to achieve differentiation and improve consumer appeal.”
Du and his co-authors had been interested in exploring consumers’ perspectives on flatter companies, but weren’t sure how strong the effect would actually be.
“We thought our interest in consumer psychology might make us especially attuned to this information,” says Du. “But the findings show that consumers do genuinely care about the relative flatness of a company, and it shapes their judgments and choices.”
