Business is nothing but a distributed decision making system to achieve its goals (IPO Listing, profit for shareholders or maximise payback for founders/promoters). It needs to optimise:
- No of decisions it has to make within a timeframe
- No of right decisions it has to make within a timeframe
Employees are nothing but nodes that take decisions. A good node is the one which makes maximum right decisions. Employees that can take good decisions are wanted by everyone and are one of the most sought after leadership traits.
Non-flat structures are slow to reach changes in the market and the feedbacks are either lost or very slow to incorporate. Feedback are the lines connecting the nodes and as we move to pyramidal structure, speed as well as accuracy gets lost. Imagine one node taking a decision for the entire company vs ten nodes making decisions - faster reaction time, decisions with more feedback, and even if you fail you have time to iterate.
Limits of nodes also play a role. Depending on the work ethics, efficiency, intelligence and incentive, a node can be at most 3x-4x more efficient than other nodes. A founder (3x-4x more efficient at max) is most incentivised and he has the best intentions for the company but his employees aren't. Right set of culture and incentive structure thus helps in getting the right decision making structure.
Every decision has a different weight on the desired outcome. All decisions are equal but some decisions are more equal than others. Eg: Choosing an investor vs choosing an agency for your social media campaign. You want time of your CEO to go into a decision which has more weightage and strategizing on long term plans than managing everything.
Startups in their early stage are non-hierarchical and can take quick decisions but often lacks expertise in getting the decision right but that can be often compensated with right feedback from the market and users. Market and user feedbacks are often most underused resources and are only available from your field force (n-3+ in hierarchy). One should always get their user and market feedback system correct!