Since the Industrial Revolution in northern Europe in the 18th century, business organization has been vertical. This means that power has flowed from the top down. Managers, hired by owners, serve to oversee all the functional aspects of the firm. More recently, this model has been challenged in various ways that seek to empower employees as against employers. The argument is that if functional groups within the firm were to take on more managerial responsibility, employees' loyalty to the firm will increase as they now have a stake in the firm.
The horizontal organization has many types. These types revolve around the nature of the groups of sub-organizations within the firm that will take power from the older, vertical style of management. There have been many proposals over the years, from radical to moderate. What they all have in common is the empowering of functional units within the firm to take more executive power to themselves in the process of serving the firm.
Frank Ostroff's well known book “The Horizontal Organization” created a new scheme of management based around “core competencies.” This book changed the literature on horizontal organizational theory. The core competencies are basically product development, sales, service and accounting, with more or fewer depending on the organization. These organizational competencies will serve to cross-fertilize one another, slowly developing a multi-skilled worker who knows the firm intimately, not just from the point of view of a single area of specialization. It is these competencies that will serve as the basic day-to-day management of the firm.
Vincent Barabba's “hybrid” organization was developed just a few years before Ostroff. His view was that the functional units of the organization should be in charge of management on a basic level, but that these organizations be controlled by skill. Barabba's version of the horizontal idea is to have merit, rather than functional unit, be the center of the firm. Those workers who have proven themselves with the most skill, work ethic and loyalty should be in control of the firm. Management should confine itself to “big picture” items and let the elites within the organization run the show.
A more radical approach to the horizontal idea reached its full maturity in the 1950s and '60s in Marshal Tito's Yugoslavia. In this approach, each firm was organized by workers' councils, which had full control over the firm. They hired managers, decided upon salaries and the daily division of labor. Tito's 1949 "Basic Law on Workers' Self-Management" was explicitly dedicated to eventually removing the state as a force in society. All social roles relating to economics were to be taken by firm-specific and region-specific workers' councils, which would control both the firm and the economic life of the society. These were all to be elected bodies, but the firm-specific councils could be elected only by the workers in the firm.