Hierarchical Organizational Structure

Abstract

A hierarchical organizational structure is a type of organization layout based on specific criteria of hierarchies. They are one of the oldest and most long-standing types of organizations, based on deeply rooted authoritarianism. In latter centuries, hierarchical structures have experienced many types of modifications and innovations, in order to increase efficiency and production rates. As they modernized, hierarchical structures became highly specialized and bureaucratic. In the twenty-first century, these present myriad different hybridizations and versions, increasingly moving toward hierarchical structures that allow for flatter and more de-centralized business models, more team work, self-directed workers, and more open managerial styles.

Overview

There are many types of organizational structures, the most common of which are a hierarchy or vertical structure and a flat or horizontal structure. From these evolve other types of hybrid organizations, such as matrix, holacracy, anarchic, and so on. In contemporary society, a hierarchical organizational structure—also known as a vertical structure—is a structure in which each entity of the organization is subordinated to a sole entity located at the top of the system. A hierarchical structure is commonly represented by a pyramidal structure, with the most powerful at the top, the middle and lower managers in the center tiers, and the base operatives at the bottom, which is the wider part of the pyramid. The top of the pyramid is smaller because power and status, as they increase, accrue to fewer and fewer members of the organization. At the bottom, there may be thousands of operatives or workers, but each has very little to no power. In consequence, the higher the level, the more the power and status, which is centralized in the hands of a few.

The term hierarchy comes from the Greek hierarkhia, which means “sacred ruler” and, as its name indicates, in its inception centuries ago, it referred to a sacred organizational order. Being sacred, such a ruling system was also inviolable and indisputable. In other words, a hierarchy was a structure of power from which submission to authority and unquestioned obedience was expected from its members. Many organizations still conform to this structure to some degree, such as the established religious institutions, the military, and team sports. The hierarchical structure has endured through centuries; for this reason, some scholars argue that it is the most common human organization system of all. Traditionally, the monarch was at the head of the system—the state—and in feudal times, the system provided a formal and authoritarian network based on hierarchy at all levels of society, with the monarch at the top. It is important to remember that monarchs were considered as divinely appointed and thus, their power was largely unimpeachable. There is no monarch ruling modern businesses and corporations; instead, power is closely and linearly distributed among a collective power of a parent company, a board of directors and a cadre of high executives which delegate, in turn, the management of the organization to their immediate subordinates. The high-level executives that serve immediately under the board of directors are usually known as “officers,” beginning with the general director or chief executive officer (CEO) of the company. The CEO is the executive in charge of operations, and he or she reports to the board of directors and is empowered to appoint and control other managers that will report to him or her, such as a chief operations officer, chief financial officer, president and vice-presidents, and other executives. A hierarchical organization, then, is a regimented and dominant mode of operation common among most large organizations, corporations, governments, and religions, and each tier has its own levels of management, power and authority.

One of the most important objectives of an organizational structure is to manage the flow of communication and knowledge. In hierarchical organizations, members communicate with those in the immediate tiers above and below, that is, with their immediate superiors and subordinates. Information and instructions are imparted from above and distributed through the vertical channels of management below each level. This structure maintains a limited and orderly flow of information, reducing excess and disorder.

As all systems do, however, hierarchical structures have advantages and disadvantages. Among its advantages are simplicity and clarity of application, less friction and interference by parallel entities, direct flow of communication, and easy to maintain discipline. A hierarchical structure establishes a clear chain of command in which subaltern executives know well the parameters within which they may take decisions autonomously or in the absence of their immediate superiors. The disadvantages are also myriad, especially overburdening people with responsibilities and obligations, excessive rigidity and inflexibility, and a multi-level system that does not allow the rapid implementation of new processes and innovation.

In general, it is considered that in hierarchical structures, most acts requiring creativity and innovation occur in the higher or executive levels, and the lower the levels, the more routine operations become with the most routine-oriented work set at the base of the pyramid. One of the problems inherent in such a system, then, is that lower operatives feel stifled and their ideas not taken into consideration. On the other hand, there are many ways in which a hierarchical structure may be organized, even though it is always vertical. One of the most common ways to divide is according to functions, such as direction and leadership, marketing, production, finances, and human resources.

In a chart, direction and leadership would be at the top (commonly responding to a board of directors), while the departments that follow, below direction and leadership (marketing, production, finances, and human resources), are all equal in hierarchical status with one another and represented horizontally. Each of these departments would respond to the top tier, not to each other.

Another way to understand a hierarchical structure in a corporate organization is to view the top levels as those where strategic activities occur, such as planning and leadership. The middle level executives are the tacticians, those who plan and implement the leadership directives through the corporate subsystems below them. The operatives are those in charge of performing the daily routine operations that make production possible. The power to autonomously make unplanned decisions increases with each level flowing upward, with very little to no decision-making allowed to operatives at the bottom of the vertical structure.

Finally, there are different kinds of pyramids. While some may be pointed, others may be flat-topped. That means that at the top, the power is more balanced, there is greater equality between managers and the levels below; moreover, it also indicates that there are fewer people at the managerial level in relation to subordinates in general, than in the pointy-top pyramid.

Applications

In a hierarchical structure daily communication takes place along a vertical chain of command in which information flows between the manager and his or her immediate subordinates. Therefore, a supervisor or manager is responsible for his or her subordinates. The orders or directives originate above, so usually a supervisor is relaying orders. Some hierarchical structures allow for some autonomy so that in specific situations, managers and workers have leeway as to how information and functions are communicated, designed, and implemented. Nevertheless, directives are still relayed top to bottom, so that it flows down the chain of command in an orderly manner. Each organization differs in its level of centralization, that is, how dependent its functions are to a center of power, as well as how it allocates authority and its distribution of responsibilities and functions.

In general, theoretical approaches to organizational structures are either based, or take into consideration, sociologist Max Weber’s ideas of principles of management, bureaucracies, and organizations. For Weber, who wrote in the late nineteenth century, bureaucracy was a mark of modernity and much more efficient than the traditional structures known until then. A bureaucracy represented the official tasks and duties of management, and management had the authority to implement these through rules. This system ensured efficiency and economic productivity. Weber’s ideal organization was meant to divide all tasks into simple and routine operations, with each department tasked with specific and well-delineated functions. Although it emphasized rules and impersonal work relations, it had the advantages of every employee knowing his or her place in the organization and the expectations that the job entailed.

Weber’s theories fueled a wide array of organizational studies and theories. In the 1960s, business experts from the Aston University in Birmingham, U.K., developed a list of factors by which to measure an organizational structure, along the lines of specialization, formalization, standardization, centralization, and layout. Of these, the most commonly used to assess an organization are: (1) specialization or functional specialization of the organization—that is, the ways in which organizations specialize their activities along functional lines; (2) level of formalization—that is, the ways in which an organization defines roles and distributes duties and functions and the extent to which these are documented; (3) autonomy (or lack of autonomy)—that is, the extent to which decision-making occurs in all levels and, in particular, above and below the CEO.

Organizational context is also important to assess an organization and gauge the extent to which it is vertical and flexible; context includes organization size, whether it has a parent company, number of employees, workflow integration, technological complexity, and level of autonomy from other organizations (e.g., sister companies, parent company, etc.). Upon analyzing a hierarchical structure, it is also important to study the organizational climate—also known as corporate climate—an important term in organizational studies, based on the values, perceptions, environment, and culture promoted in the organization.

Research studies that assess all these factors in organizations, find that hierarchical organizational structures are more centralized and bureaucratic; they score lower than other types of organization in scales measuring management concern for employee participation and involvement; they also score lower in openness, flexibility, intellectual orientation, sociability, industriousness, and innovation or predisposition to innovate. On other hand, hierarchical organizations score higher on scientific or technological orientation, task orientation, respect for rules, protocols and procedures, and administrative efficiency. Many of these studies, however, focus on conventional hierarchical organizations, even though corporations, and the business world in general, are moving toward less conventional management models. Organizations in the late twentieth century began to veer away from the most authoritarian hierarchical models and, in the twenty-first century, increasingly adopt innovative structures and management styles.

There are different types of hybrid organizations. Some are more vertically structured, while others are “flatter.” In traditional hierarchical structures, power, control, communication, and information flow top-to-bottom, through many layers of managerial control. A flat structure, on the other hand, presents less managerial layers, fosters opens lines of communication, and collaborative ways of sharing information and authority. There are, then, fewer layers of control between top and bottom, and less centralization. Large organizations would find it too challenging, if not impossible, to be completely flat. They can, however, innovate by reducing managerial layers throughout the structure, making it flatter than a traditional hierarchy. By turning flatter, hierarchical structures often report increases in efficiency and productivity.

However, even flatter organizational structures are hierarchical; adapting some horizontal systems is convenient, because it fosters greater collaboration, communication, employee participation, better resource allocation, and so on. For large corporations to implement this model successfully, it is important that they have the appropriate technologies for communication to flow speedily and free. The problem with the implementation of cutting-edge communication technology is that it comes with a fragmentation of the workplace; that is, in a global market, work can take place anywhere in the world and problematizes traditional structures of organizational hierarchy.

A useful example of a hierarchical structure is the U.S. government. In fact, while operating as a traditional hierarchy, the U.S. government is so vast that it really operates as a structure made of structures. At the top of the pyramid is not a person but the Constitution of the United States. The Constitution protects the rights of all citizens and as such, is the ideal that rules and guides all branches of government. Below the Constitution are the three branches of government: the executive (president), the judicial (Supreme Court), and the legislative (Senate and House of Representatives). Even though many erroneously believe that the executive, or president, is more powerful than the rest, these three branches are equal in power and all three must abide by the Constitution. None of these branches can unilaterally act in ways that go against what is stated in the Constitution. In other words, they would be represented horizontally and at the same level in a pyramid. Directly below each of the three main branches, are all sub-branches that would be represented more horizontally, or flatly, in a chart, layer after layer; for example, the departments, offices, and agencies of the executive branch, or the lower federal courts of the judicial branch.

Discourse

As stated above, there are many adaptations of flat organizational models into hierarchical structures, a trend that keeps growing. One example is that of a conventional hierarchical company that has an internal unit, department, or program that operates flatly. Employees in that open space are free to share and implement new ideas and to organize teams to work on them. The final aim is to create innovative teams that work more autonomously and with less bureaucracy than the rest of the company. An example of such a hybrid or “flatter” organization is known as a holacracy. In a holacracy, teams form systems—or circles—that are both independent yet symbiotic, that is, they operate independently yet, in some aspects, they are inter-dependent.

A holacracy operates in an organizational structure and provides spaces where all workers have an equal say while, at the same time, they must follow the direction of a shared authority. A holacracy, then, remains a hierarchical structure, even though it provides spaces for consensual and autonomous decision-making. Some experts describe it as a “hierarchy of circles,” in which the circles—flat structures internally—operate within a hierarchy. Most companies are moving toward hybrid hierarchical structures, though it may not be a viable model for all companies. Most large organizations move slower than smaller ones and may prefer to implement a flatter structure that is gradual, scalable, and adaptable. These innovative managerial models may take years and require vast amounts of resources to implement, especially if the organization’s structure was deeply hierarchical from its inception.

Terms & Concepts

Authoritarian: Refers to a governing or management system that enforces obedience to authority figures and the established system at the expense of personal freedom. In a business situation, it would favor orderliness and a slow rate of change based on following proper procedure or orders from above. Authoritarianism is usually related to very structured traditional organizations such as the military.

Centralization: Refers to the position of something relative to the point of convergence (the center). When it comes to organizations, it is not only how close to the center an organization’s units and employees are, but also how big the center is, or whether there are one or more centers.

Hierarchy: A system of organization that establishes clear demarcations between ranks and layers of authority and power. It is also associated with vertical organizations, understanding that it follows a top-to-bottom ranking system and flow of power and communication.

Holacracy: A decentralized organizational and management system through which decision-making takes place democratically and flatly through self-constituted teams within the hierarchy.

Hybrid: The results of combining or mixing two different species, elements, or models.

Innovation: In business, the act process of transforming new ideas and technologies into goods and services.

Vertical Organization: An organizational structure based on a top-down system in which communication and power flows from managers to workers in a hierarchical chain of command.

Bibliography

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Frederiksen, A., & Poulsen, O. (2016). Income inequality: The consequences of skill-upgrading when firms have hierarchical organizational structures. Economic Inquiry, 54(2), 1224–1239. Retrieved on November 26, 2018 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=113307255&site=ehost-live

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Suggested Reading

Diefenbach, T. (2013) Hierarchy and organization: Toward a general theory of hierarchical systems. London: Routledge.

Frederiksen, A., & Poulsen, O. (2016). Income inequality: The consequences of skill-upgrading when firms have hierarchical organizational structures. Economic Inquiry, 54(2), 1224–1239. Retrieved January 1, 2019 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=113307255&site=ehost-live

Kofjač, D., Bavec, B., & Škraba, A. (2015). Web application for hierarchical organizational structure optimization—human resource management case study. Organizacija, 48(3), 177–186. Retrieved January 1, 2019 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=108979038&site=ehost-live

Korzun, D., & Gurtov, A. (2012). Structured peer-to-peer systems: Fundamentals of hierarchical organization. Cham, Switzerland: Springer.

Pellinen, J., Teittinen, H., & Järvenpää, M. (2016). Performance measurement system in the situation of simultaneous vertical and horizontal integration. International Journal of Operations & Production Management, 36(10), 1182–1200. Retrieved on November 26, 2018 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=118451326&site=ehost-live