It’s been an eventful year for Tom Osovitzki, the 38-year-old CEO of Corporate Travel Management Solutions. From an office in Miami, he lists a few big wins for the firm, which handles travel arrangements for corporations. Known by its acronym, CTMS, it now counts 25 major sports clubs as clients (it recently signed the NBA’s Sacramento Kings) and just inked a contract with a major Canadian retailer, an account Osovitzki says is worth $200 million. By comparison, CTMS’s total 2014 sales were about US$230 million.
The secret to such fast growth? Osovitzki says it’s his unusual management structure. The company is built on a flat hierarchy, meaning it has completely eliminated layers of middle managers. CTMS has 160 employees and seven offices across the globe— including a head office in Concord, Ont— but only two levels of management, including the C-suite. And even that hierarchy is fluid, with most senior executives taking a hands-on approach in day-to-day operations.
Avoiding layers of middle management gives the company an edge over its bigger competitors, including Amex and Carlson Wagonlit Travel, says Osovitzki, because it can offer more personalized service. “When we go out and present, we’re all there, and it gives the client the comfort that if they need to reach me or the COO, we’re just a phone call away,” says Osovitzki. “Issues get resolved in five minutes, not five days.”
CTMS joins a growing number of companies, such as Las Vegas–based online shoe retailer Zappos, that are flattening their organizations and being rewarded for their boldness. Flat hierarchies encourage employees to use their own ingenuity to solve problems; studies show employees who have creative freedom and increased decision-making power are more engaged and productive. The result? Companies that are faster, nimbler and more innovative—and, ostensibly, more profitable.
The model was born in the U.S. tech scene, where startups adopted flat reporting structures out of lean necessity. Now the model is gaining traction in Canada, and not just among tech firms. Amir Rahnema, a consultant with Deloitte, has helped more than 20 Canadian firms restructure since the 2008 financial crisis. He says managers are looking for ways to reduce operating costs, and shedding a few layers is often the first step. These days, a large Canadian company, with 1,500 to 2,000 employees, will re-evaluate aspects of its structure every 12 to 18 months rather than every decade, says Rahnema. He chalks it up to “the level of disruption we have in the marketplace today.”
Michelle Harris, CTMS’s marketing director, says if her company had been structured in a traditional hierarchical way, it would have required two more layers of managers, largely in supervisory roles. Without those added levels of oversight, CTMS has a simplified decision-making process. A team member will identify an issue or opportunity for improvement, put together a case and schedule a meeting or call with stakeholders to review the item. “Everyone’s input is heard and valued, helping to make the right decision in a timely manner,” says Harris.
On the extreme end of the spectrum, companies like Zappos have adopted Holacracy, a radical form of flat structure that does away with job titles altogether. For Zappos, it wasn’t a smooth transition—some employees left the company, citing confusion and increased tension between co-workers.
Other companies found different challenges in a flattened structure. When Aimia, the marketing firm that pioneered Air Canada’s Aeroplan loyalty program, was established, its leadership team decided to keep the company’s management to fewer than four layers. “After a few years, employees came to us saying there weren’t any opportunities for growth,” recalls Melissa Sonberg, who was part of those discussions and now serves as executive-in-residence at Desautels faculty of management. “This is a multibillion-dollar company, but there were none of the ladders and steps to demonstrate achievement.”
A 2012 study from the Stanford Graduate School of Business and Cornell University suggests most workers find comfort in traditional hierarchies because they’re predictable and familiar, and their asymmetries create concrete “end points.” One of the ways Aimia solved this problem was to invent new job titles that made employees’ roles clearer. That Stanford/Cornell study came to a similar conclusion, suggesting that companies turn managers, directors and associates, into “writers in charge of advertising copy” or “co-ordinators of sustainability activities.” Says Sonberg: “Sometimes you have to invent hierarchy.”
The same holds true for CTMS, where employees still have titles. Osovitzki adds that while employees have a lot of freedom to make decisions, the company isn’t totally self-managing—there’s a ceiling to what decisions some staff can make on their own. They also still offer quarterly reviews for employees.
For firms not ready to make such a radical leap, simply organizing staff into strategic self-contained pods that each use a flat hierarchy is an easy first step.
That’s the approach more formal, established companies are taking, says Rahnema. “Delayering a layer or so is achievable,” he says. “The exercise is how do you remove a layer or two in order to realign your company with what your customer wants?”