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Flat forward: What can businesses learn from the Nordic management model?

In an age where businesses need to adapt and change to get ahead, could a flat, egalitarian organisational structure be the way forward?

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Flat forward: What businesses can learn from the Nordic management style.

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GOING FLAT OUT.

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The head office of Finnish games developer Rovio in Helsinki, Finland. Nordic economies are small and open, focusing on international trade. This has often led to a style of doing business that promotes adaptability.

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Hans Henrik Beck, founder and global managing partner of QVARTZ, says: "Even though the CEO has the final say on decisions, he/she still needs to delegate the work to those best positioned to solve specific issues or problems."

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Johnson Chng, managing partner (Asia) at Danish consultancy QVARTZ, says: "The millennial generation of workers ... want opportunities and platforms for their opinions to help or provide direction for their companies."

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Cyclists at a traffic stop in Copenhagen, Denmark. In the 2019 World Happiness Report released in March by the United Nations, five of the top 10 spots in the annual survey were held by Nordic countries - Finland, Denmark, Norway, Iceland and Sweden.

THINK fast, move quickly. These rapid response skills have become key to business survival. Faced with constant change, companies have had to evolve and adapt more than ever before. Hence the widespread use of "agile", "innovate", and "collaborate" in corporate shop talk. But while companies big and small are taking steps towards change, their ability to actually change could be hamstrung by the structure of the company itself, say management consultants.

Most businesses are vertical or hierarchical organisations, where instructions are passed from the top of the pyramid down towards the bottom. Such structures have little feedback flow from ground to senior brass, and create a high-control, low-autonomy environment which is more likely to discourage moves to change. That corporate culture also no longer sits well with a workforce that has changed both in demographic and in expectations.

Says Johnson Chng, managing partner (Asia) at Danish consultancy QVARTZ: "The millennial generation of workers are well-educated and are full of ideas, but are not as keen to merely take instructions from superiors as previous generations.

"Instead, they want opportunities and platforms for their opinions to help or provide direction for their companies."

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Can companies and societies, often tied to a legacy of vertical structures and hierarchical culture, take a page off the Nordic management and business leadership model - which is renowned for its flat and egalitarian structure and its ability to stay agile - to cope better in a fast changing economy?

Mr Chng thinks so: "This is where businesses can adopt the Nordic way of doing things, and I believe this will bring in a lot of value for companies in Asia and Singapore, too."

The Nordic way

Nordic economies can be characterised as being small, open economies which are focused on international trade, and are key members of global markets. This has often led to a style of doing business that promotes adaptability. Much of this stems from the Scandinavian way of life.

For all the chilly weather and harsh winters, the countries of the Nordics have consistently ranked among the world's happiest places. In the 2019 World Happiness Report released in March by the United Nations' Sustainable Development Solutions Network, five of the top 10 spots in the annual survey were held by Nordic countries - Finland, Denmark, Norway, Iceland and Sweden.

Citizens in these countries enjoy a high quality of life with higher levels of safety, affordable childcare and healthcare, and free education, and do not mind the high tax rates that are required to keep the system sustainable. Even migrants to these countries polled were as satisfied with life as locals.

This has much to do with the egalitarian nature of their society, which feeds into the Nordic management style. It is built off the need to compromise and desire to balance its various interests between different actors in the labour market.

While there are varying degrees as to how this is practised among Nordic countries, one common theme stands out.

The organisational structure, which is how a business delineates lines of communication, policies, authority and responsibility of its staff, is mostly flat or horizontal.

Employees are given the authority by management to implement their own ideas in their areas of expertise, and their own ways of carrying them out as long as they produce a desirable outcome for the firm and employee performance is maintained at a high level. This dissolves barriers between the executive and staff levels within a firm, removing what tends to be a shortcoming of more vertical organisations.

The leader listens to all employees when making and implementing decisions, rather than emphasising personal authority.

As Hans Henrik Beck, founder and global managing partner of QVARTZ, says: "A lot of companies talk about agility and the ability to act fast and be responsive to changes but in order to do that, companies cannot afford to have one person having the final say, but instead, many take the lead."

Business leaders stress the organisation's dependence on the capabilities of their employees.

"Even though the CEO has the final say on decisions, he/she still needs to delegate the work to those best positioned to solve specific issues or problems," Mr Beck explains.

For example, from a customer service perspective, empowering front-facing customer officers can lead to better initiatives to improve customer satisfaction, he says.

"They (customer service officers) deal with customers on a daily basis and actually know the customer specific situation better than the head of department, who in turn, knows more than the CEO," Mr Beck adds.

Teamwork and collaboration

Yet, while this empowers and encourages individuals to step up and take charge, the Nordic style has no place for maverick employees. It relies heavily on embracing teamwork and reaching consensus. It is underpinned by the law of Jante, a code of conduct that in fact does not encourage doing things out of the ordinary, and holds the success of the team as more important than individual achievement. In other words, it's ok to be average and one can find happiness in doing so.

Tasks in Nordic businesses are carried out in small autonomous groups, where staff of different levels of experience are each seen as equally valued contributors to a project.

This fosters an environment of teamwork, collaboration and exchange of ideas between staff from different departments in a firm. Research has shown such set-ups work best because employees are given ownership and accountability.

In the Nordic model, these teams rely on all contributing members and are able to quickly identify and acknowledge when a member of the team needs support.

The flatter model could also suit a younger workforce. In an article, the Ivey Business Journal found millennials - skilled in technology, energetic, self-confident, able to multi-task - to have high expectations for themselves, and have a preference for working in teams rather than as individuals.

Who's the boss?

What then is the role of the leader in such organisations?

Within the Nordic management model, the head is one who encourages co-operation and is more of a facilitator within the organisation, as opposed to one that directs business units to achieve results.

This contrasts with more top-down corporate structures where demands to meet quotas or key performance indicators (KPIs) can lead to competition among business units, which may not be for the overall benefit of the company, especially in a quickly evolving environment.

"When you look at real organisations, having a clear hierarchy within your firm actually makes people turn on each other when they face an outside threat," said Lindred Greer, a professor of organisational behaviour from the Stanford Graduate School of Business, in an Insights by Stanford Business article in 2017.

Effective teamwork against such threats requires not hierarchy but egalitarianism and not a centralised power structure but a consensus-based approach to tackling issues, Prof Greer said.

QVARTZ's Mr Beck adds: "It has to be a two-way street, where leaders are not only engaging staff by brain, but also by heart.

"If you interact with people on an intellectual level, then you will only have a very transactional relationship. But if leaders also engage by heart, you will have a more rewarding and trust-based relationship."

The business leader's role, then, is to identify a long-term direction for the firm, and be flexible to adapting to changes, with staff charting how they intend to get the firm there.

This also represents a departure from the paternalistic role that leaders in vertical organisations - and in Asia and the developing world - take on.

As Prof Greer says, vertical organisations that adopt a more horizontal framework are not only likely to keep employees happy, but also enhance performance and benefit the bottom line.

Other benefits

According to data covering 13 markets in the Asia-Pacific, human resources analytics firm EngageRocket found that more than 50 per cent of companies that scored high levels of satisfaction with the degree of autonomy came from the "new tech" industry: technology startups hiring a large proportion of employees who are millennials.

At the other end of the spectrum, were companies from more traditional industries, with closer to 20 per cent of employees expressing dissatisfaction with the degree of autonomy.

"There wasn't a specific industry that stood out, but there was almost no representation from the 'new tech' companies the this end of the spectrum, suggesting that a flatter management structure that delivers more autonomy to employees appeals actually not just to millennials, but across the board to employees of all generations," notes EngageRocket co-founder and chief executive officer (CEO) Leong Chee Tung.

The egalitarian nature of Nordic culture has also had a positive effect on the corporate governance of firms.

Mak Yuen Teen, associate professor of accounting and former vice dean of the NUS Business School, National University of Singapore, points to Nordic countries having a lower ratio between the CEO remuneration and average employee remuneration.

"About 15 years ago, I spent two weeks in Denmark visiting business schools there, and was told something I have never heard before - CEOs there may be embarrassed if they are paid too much relative to their average employees!" he remarks.

The Nordic culture has meant that employee representation on boards are better than in Asia, and there is also a higher percentage of women on boards.

Professor Mak says: "Since corporate governance is about being willing to constructively challenge viewpoints, I think an egalitarian society is more conducive to corporate governance."

However, while he has found that in past research, egalitarian culture tends to be associated with higher country governance scores, he adds that "we should be cautious about reading too much into simple correlations".

A leaderless democracy?

With an egalitarian style of business leadership comes its criticisms.

Critics have said that this style of leadership is akin to a "leaderless democracy" as there is no centralised decision making structure. Vertical organisations, in contrast, have a well-defined chain of command.

And while autonomy certainly adds to staff satisfaction and builds morale, the consensus-based approach means that employees are often entitled to their opinions on how issues and projects should be tackled. This may slow the speed at which decisions are taken.

QVARTZ's Mr Beck says: "In the Nordics, staff have the right to an opinion on many matters, which may mean that a lot of time is spent on deciding how to proceed or make progress on resolution to make a decision."

This, Mr Beck adds, can also be a hindrance to how fast a firm can react to threats.

In this sense, firms with a more rigid and vertical structure benefit as decisions can be taken quickly to reach to changes in the business environment.

Professor Mak elaborates: "Where the environment changes rapidly for example, speed in decision-making is the key and a more collaborative style may be less suitable, while if the environment is highly complex, then perhaps a more collaborative style which takes into account different viewpoints makes more sense."

There is too, a larger context that determines whether a flatter model works. Prof Mak notes that leadership styles are usually representative of the societal nature. "In societies that are more hierarchical in nature - like many Asian societies - the business leadership/management style also tends to be more hierarchical in nature," he says.

Therefore, both management and staff may be more attuned to vertical organisational behaviour.

Mr Beck notes that respect for authority in the region is strong, and that can be powerful as staff are usually willing to accept a leader's decision.

In fact, QVARTZ's Mr Chng points out that senior management from companies in Asia has expressed wanting to adopt flatter structures but notes that there could be difficulty getting the work force to adopt a new style.

Ultimately, businesses operating in different parts of the world need to look at their own societal and organisation structure and identify what their inherent strengths are, Mr Beck says.

In The Horizontal Organization, author Frank Ostroff believes that companies will become more horizontal than vertical as the world globalises. Yet, as Mr Ostroff points out, no business should be strictly a horizontal or vertical structure, but should instead, adopt the best elements of each.