This pyramid organization design evolved from an ancient military model, with, for example, centurions (managing 100 people) and decurions (managing 10 people).  This model was very effective for managing people and supplies, especially in wartime.

When the production line became the standard for the industrial revolution, the military model was adopted for organization design.  The reason?  First, time had proved that it worked efficiently for the “chunking” of work.  Second, during the 20th century great numbers of people spent time in the military.  They brought with them to the workplace the “rank and file” structure they had seen in use.

In the pyramid model, there's a direct vertical line (dark lines in the chart above) from upper management, through middle management, and down to the baseline employees.  Major decisions tend to be made at the top, and filter down to each person below.  Each person at each level, therefore, works to satisfy some person one level above.  Horizontal considerations are usually minimal.  There is little concern for the needs of people or organizations to the side.  This structure works fairly well in a military environment.

However, when vertical layers of management are used for control, multiple organization ceilings are created.  These can conceal or filter information, block the flow of ideas, and slow change.  Upper management provides direction to the next level, and this direction eventually translates into telling lower-level people what to do.  At some point in the downward movement, the reason why is lost.  This prevents lower-level people, who are much closer to the work and the customers, from providing helpful ideas and suggestions, and from making on-the-spot decisions.

So, when satisfying a boss is more important than satisfying a customer, businesses indirectly encourage internal politics and conflict.  Concern for power and control causes companies to separate authority from responsibility and accountability, making many jobs simply empty tasks.  With enough layers, owners and/or top managers get disconnected from the baseline work-force, which becomes disillusioned with "management".

However, back to the boxcars and tracks.  There are two issues.  First, moving boxcars from one track to another (work-arounds) is inefficient and costly.  Moving boxcars along a smooth track toward their destination is productive.  Second, employees moving boxcars is not the same as management fixing broken tracks.  Because many U.S. companies don’t see themselves as systems, they tend to treat problems by "fixing" symptoms (often over and over again) instead of permanently solving root causes.  This short-sighted, tactical thinking tends to block strategic change and to minimize investments in such things as planning and breakthrough methodologies.  And customer satisfaction often ends up taking a back seat.

The final, and perhaps most damaging, issue with the typical pyramid organization structure is the misuse of senior management time and energy.  Most problems (often called “brushfires”) happen, not within boxes on an organization chart, but in the open space between them (refer back to the Typical Organization Chart figure).  And guess who gets to manage that open space?  You—the organization head.  This means that when a problem occurs between any two boxes, things often escalate up to the most common manager of the concerned boxes.  And instead of spending time and energy on the strategic development of the business, you, the organization head—as a resource—are used to put out these brushfires.  Since the senior management team is paid the highest hourly rate in the company, every hour spent this way is a great waste of a business’s most valuable resources.

The way your organization responds to its business environment can be described by two useful terms:  structured flexibility and flexible structure.  They each have a slightly different use, but both contain the concept of a solid framework and adaptability.

Today it's virtually impossible for business owners and/or leaders to be at all the front lines of activity in a company.  There's just too much for one person to know and do.  So business leaders must rely more and more on the "doing" people.

To compete in today's global marketplace is anything but easy.  Customers want products and services delivered faster (Time), cheaper (Cost) and better (Quality).  Suppliers want information (eg, forecasts) quicker.  The cost of labor, healthcare and other government regulations causes everyone to focus on costs.  And employees want a higher work quality—meaningful and challenging work, an opportunity to learn and grow, and competitive compensation.

Under these pressures, organization weaknesses can easily become breakdowns.  To survive (simply stay even) or thrive (gain a competitive advantage), businesses need to change from a strategy of managing and organizing by functions to a focus on critical processes—the essential activities an organization needs to perform excellently for the business to be successful.