The 2020s wave of manager layoffs came wrapped in a theory. Cut the middle layer, the argument went, and the organization gets flatter, faster, and freer. It is a tempting story, and it rests on a mistake about what a hierarchy actually is. Delete the boxes on the chart and the reporting lines disappear. The power does not.
Formal hierarchy leaves, informal hierarchy arrives
The most useful correction comes from Foss and Klein (2022), who studied firms that market themselves as flat or bossless. Their finding is blunt: many such companies retain real bosses and hierarchies in practice, just informal or renamed. Formal hierarchy is not eliminated so much as replaced by an informal one. This matters because the two are not equivalent. A formal boss has a title, a scope, and a name attached to a decision. An informal boss has all the influence and none of the accountability, and no one can point to the org chart to contest it.
The pattern is old enough to have a canonical case. Valve, the game developer famous for a flat structure with no assigned managers, is the example Foss and Klein (2022) return to. By 2013 employees described the company's creative state as "The Wilderness," and the eventual release of Half-Life: Alyx required management intervention despite the officially bossless model. Structurelessness did not remove leadership. It hid it, and made the firm slow to notice when a project had stalled.
The mechanism is worth spelling out, because it is not unique to game studios. In a flat firm, work still has to be allocated, disputes still have to be settled, and someone still has to decide which of two projects gets the scarce engineer. When no formal role owns those calls, they migrate to whoever can make them stick. Foss and Klein (2022) argue this is why flat firms are few and tend to struggle with innovation, scale, and longevity in dynamic, time-sensitive conditions: the coordination work does not disappear when the managers do, it just gets done worse, by people whose authority no one agreed to.
Why the informal version is worse
An informal hierarchy is not a milder hierarchy. It is often a more arbitrary one. When authority is not written down, it accrues to whoever has tenure, charisma, proximity to the founder, or the loudest voice in the room. Lee and Edmondson (2017) note that conventional hierarchy already hardens status differences that stifle development; an unnamed hierarchy can do the same thing while denying that any hierarchy exists at all, which removes the one lever a person has for appeal. You cannot renegotiate a reporting line that officially is not there.
Zappos learned this at scale. Groth (2020) documents how the company, having pushed hard into holacracy, quietly walked it back: it dropped the system's bureaucratic meetings and brought managers back, keeping only the circular hierarchy as a leftover artifact. By 2017 it had moved to an internal market in which teams run as small businesses with their own profit and loss. The reversal is telling. When a firm strips out formal structure and the results wobble, the fix it reaches for is usually a return of named, accountable authority, not more flatness.
Design the hierarchy you cannot avoid
The practical error is treating flatness as the goal rather than as a possible means. Foss and Klein (2022) find that near-bossless firms, of which there are few, do not demonstrably outperform conventionally organized ones, which should temper the assumption that removing managers is free. The choice a leader actually faces is not hierarchy versus no hierarchy. It is a visible hierarchy that can be questioned versus an invisible one that cannot.
Semco is instructive precisely because it did not pretend to abolish authority. Semler (1989) describes a firm that kept structure while redistributing power deliberately: workers vote on major decisions, set their own schedules, and see the monthly books, so influence is grounded in information everyone can access rather than in whispered proximity to the top. That is the difference between designing a distribution of power and simply deleting the label on it.
The distinction matters because informal hierarchy is not merely less visible, it is less improvable. A formal reporting line can be audited, questioned in a review, and changed by a decision anyone can trace. An informal one leaves no such handle. When the person who really decides holds no title for it, there is no role to redesign, no scope to clarify, no successor to name. The organization has locked its power arrangement in a form that resists the very tools, reorganization, promotion, and appeal, that it would normally use to correct itself. Deleting the chart does not free the firm from hierarchy. It strips out the interface through which hierarchy could be governed.
So before cutting the middle layer, a leader should ask a harder question than "how flat can we get." Ask who will make the decisions those managers were making, by what right, and how anyone will contest them. If the honest answer is that the decisions will migrate to whoever is already most influential, the reorganization has not removed the hierarchy. It has only removed the part of it you could see, and with it the part you could fix.
Sources
- Foss, N. & Klein, P. (2022). Who's the boss? The persistence of entrepreneurial hierarchy in flat organizations. Central evidence that flat firms retain real, informal hierarchies and that Valve's flat structure produced 'The Wilderness' and required intervention. https://link.springer.com/article/10.1007/s41469-022-00132-8
- Groth, A. (2020). Zappos has quietly backed away from holacracy. Reports that Zappos dropped holacracy's meetings, brought managers back, and moved to an internal market, showing the walk-back toward named authority. https://qz.com/work/1776841/zappos-has-quietly-backed-away-from-holacracy
- Lee, M. Y. & Edmondson, A. C. (2017). Self-managing organizations: Exploring the limits of less-hierarchical organizing. Notes that hierarchy hardens status differences, used to argue an unnamed hierarchy can do the same without recourse. https://www.sciencedirect.com/science/article/abs/pii/S0191308517300059
- Semler, R. (1989). Managing Without Managers. Describes Semco keeping structure while grounding power in votes and open books rather than proximity, the contrast to invisible authority. https://hbr.org/1989/09/managing-without-managers