Tall to Flat; Overcoming the “Talent Bottleneck”

Matthew Hill

Management Process 637

Tall to Flat; Overcoming the “Talent Bottleneck”

In today’s environment many companies consider “people” their biggest asset and the key to their competitive advantage in the market. In 2001 Philips made a strategic decision to flatten its organization moving from eight layers in its organizational structure to four. While there are many advantages to a decision like this, there are also many disadvantages. One of the major disadvantages is the affect a change like this can have on people within the organization especially when it comes to retaining top talent.

Philips is a very large organization employing 120,000 employees globally. Previously a tall formal organization it had been historically slow in making decisions and reacting to changes in the business environment. As a result tall formal organizations are best suited for stable external environments (Hitt, 2012) . In their attempt to adapt to the fast paced, ever-changing business environment a strategic decision to flatten the organization would allow for less layers to get through when attempting to make decisions and changes from the bottom up. In today’s difficult economic times this decision was also financially based as it allows for restructuring and removing many high paying management positions as layers are collapsed and responsibilities merged. A change of this magnitude requires managers and subordinates to have stronger capabilities (Hitt, 2012), which means that the organization would need to focus energies on attracting top talent. Attracting talented employees at Philips is the easy part; retaining top talent has proven to be the most difficult task.

In the past few years Philips had focused on attracting “high potential” employees into the organization in an effort to increase overall business management acumen among new hires. Upon hiring employees with strong previous work experience and many MBA graduates from top universities, Philips used a...