In an age when business innovation is at a premium and relies increasingly on creative initiatives by workers, the merits of the conventional hierarchy are being questioned, says John Child
Any set of relationships in which one person or group is subordinated to another may be described as hierarchical. Hierarchies are central to the organisation of major institutions, including companies, governments, the military, churches, and universities.
The functional principle behind hierarchy is that different levels of authority and responsibility should be distributed within an organisation according to the importance or complexity of the decisions to be made, as well as the capacity of different individuals to make them.
So, it is normally considered appropriate for people at higher levels to have the authority to direct those at lower levels.
One of the foundations of scientific management was the separation of ‘thinking’, as a prerogative of managers, from ‘doing’, which was the role of workers. This justifies the authority of managers to instruct workers what to do and, by implication, to earn a greater reward for doing so. However, in an age when business innovation is at a premium and relies increasingly on creative initiatives by workers, the merits of the conventional hierarchy are being questioned.
The benefits of hierarchy
By embodying a vertical division of labour, hierarchy allows for different levels of responsibility and authority to be allocated to personnel occupying distinct levels in the reporting system.
A clear allocation of responsibilities according to hierarchical level should clarify decision-making rights, facilitate the evaluation of how people perform in their roles and provide paths for career progression. These attributes are expected to provide an efficient management structure and effective decision-making. A hierarchical structure also assists good corporate governance by clarifying accountability and performance.
Hierarchy is best suited to maintaining accountability, predictability and control under conditions in which an organisation’s activities are relatively routine and recurrent. It is also a natural response to the growth of organisations which tends to drive up the number of managerial levels. In these circumstances managing through a hierarchy can be supported by other arrangements such as contracts, bureaucratic rules, and various standards, such as accounting, health and safety, product quality and technical specifications. In fact, they provide the structure necessary for hierarchy to offer the organisational benefits claimed for it.
Hierarchy often proves to be psychologically satisfying to employees. Opportunities to progress over time to a higher rank can have a motivational benefit if promotion criteria are carefully aligned with the goals of the organisation. Some people lower down hierarchical structures also welcome them as providing a safer working environment with less need to take complex decisions and shoulder responsibilities.
The shortcomings of hierarchy
In view of the managerial benefits hierarchy can offer, why does it attract so much criticism? Among the reasons is that it can have significant downsides for organisational performance as well as failing to meet the expectations of the new generation of workers.
There are four main performance downsides. First, tall structures entail a higher proportion of managers and higher overheads in terms of office and support costs. The value added by these extra staff is not always apparent, and this leads to questions about the real contribution they make to performance. Second, there is consistent evidence that the presence of hierarchical levels inhibits both the flow and the accuracy of communication, especially the upward transmission of information about problems or opportunities arising within an organisation. This barrier has potentially serious consequences for the quality of decision-making and organisational learning. The issue arises because hierarchies are at one and the same time channels of communication and ladders of power. So lower-level employees can feel vulnerable about communicating bad or unwelcome news upwards.
The third downside is the negative impact that hierarchy can have on a firm’s innovation and agility. This issue has attracted the most attention. It arises largely from the way that hierarchy can discourage lower-level initiatives and the open communication of information and ideas. Hierarchies are seen to inhibit the development and sharing of creative ideas. The problem is worse if a firm has multiple hierarchies divided by departmental boundaries. However, recent research brings some caveats to this view. One is that while hierarchies do generally inhibit creative idea-generation, some degree of hierarchical direction can benefit the later stage of innovation when a selection among proposals has to be made. Another is that, rather counter intuitively, the formal definition and clarity of roles within hierarchies may make it easier to negotiate a redefinition of those roles so as to reshape activities and redirect resources when required to support innovative changes.
The fourth problem is that far from being the stable and unified command and control structures set out in formal charts, hierarchies are often in reality hotbeds of organisational politics and conflict. The trouble is that they combine the vertical division of responsibilities with career, payment, status and power structures. Higher-level power can be abused to the point of pursuing personal self-interest and suppressing whistleblowers who try to expose this. Problems can also arise if hierarchical power and status become misaligned. For example when line managers have more power but lower status than specialists, the consequence can be that the latter’s knowledge and expertise, although nominally acknowledged, is in practice disregarded and the specialists become demotivated. This hierarchical pathology can inhibit organisations from learning and from adapting to changing environments through making appropriate innovations. Last but not least, rivalries can arise between parallel hierarchies
How can hierarchy’s shortcomings be resolved?
There are broadly two complementary approaches to resolving hierarchy’s shortcomings. The first addresses the structural aspects of hierarchy, while the second aims to reduce hierarchical behaviour.
The possibility of flattening organisation structures by delayering (removing levels in their hierarchies) has a number of potential attractions. It promises to decrease overhead costs, reduce barriers to communication, increase the involvement of employees in decision-making and raise their morale, improve accountability and enhance market responsiveness. Modern information and communication technologies can boost delayering among managers by enabling decisions to be delegated once staff have ready access to relevant information and can easily communicate across the company to ensure the necessary coordination. With the aid of the new technologies, companies can more readily strip out layers of management and shift the pattern of communications from a downward flow along prescribed, hierarchical routes to a more multidirectional and networked process. This is one of the promises of the so-called ‘virtual organisation’.
Another route to delayering is through reducing organisational size. Ideally downsizing should be phased over time, otherwise it risks undermining employee morale and losing essential corporate memory if key staff leave. Other approaches include outsourcing and adopting a federated structure with smaller constituent units. But these solutions can create coordination problems, and outsourcing risks giving up operational control and key competencies.
The shrinking of hierarchical structures through delayering does not guarantee a reduction in hierarchical behaviour such as centralised decision-making. Other reforms therefore focus on modifying this behaviour through enhancing worker ‘self-management’. One is to move from hierarchies to teams, so that instead of authority being vested in middle-level managers, it becomes vested in teams. In addition to motivational benefits, teams can improve cross-functional cooperation, and react quickly and creatively to new situations because they do not have to pass matters up the hierarchy for a decision. Another approach relies on the formalisation of work into roles which enable employees to work relatively autonomously and which can be revised in regular work group meetings.
The online shoe and clothing retailer Zappos calls this approach ‘Holacracy’. It is intended to promote self-management as an alternative to reliance on hierarchical management. In Zappo’s case, it increased the company’s flexibility to adjust to changing market conditions which was reflected in rising profitability.
However, there are a number of requirements for these moves towards self-managing to succeed. Employees need to be supported with appropriate training to undertake greater responsibilities. A participative approach to control is also required, based on targets mutually agreed by managers and individual workers or teams. Above all, managements have to be prepared to communicate openly and transparently with their employees and so build the trust which is often lacking in hierarchies.
Hierarchy and the emerging generation
Today’s business imperatives suggest what the future of hierarchy might look like. Companies have to adapt and innovate in response to the pressures of competition, rapid technological advance, urgent environmental challenges, and the growing insistence that companies act responsibly. These developments are encouraging a keen interest in less hierarchical ways of organising that are not only more agile but also responsive to stakeholder demands. Rather than accountability within hierarchies just being upwards to top management, we are likely to see mechanisms for downward accountability to employees and other stakeholders.
Moreover, small is becoming increasingly beautiful and this allows for reductions in hierarchy. Innovation in the fast-growing fields of high technology is predominantly coming from small entrepreneurial ventures which are light on hierarchy partly due to their small size and partly to meet the expectations of the young knowledge workers they typically employ.
The emerging generation will hopefully be the agents of changes to hierarchy. These millennials come with different assumptions about how to work, which make them less inclined than their predecessors to accept conformity and the authority of non-expert ‘managers’ in a hierarchy. The younger tech-savvy generation is using social media as a tool for expressing their collective views and interests. Social media facilitate the rapid and large-scale mobilisation of protest movements, many of which are directed at abuses of hierarchical power. On an everyday basis, social media are nurturing a new norm of direct interpersonal communication unhindered by distinctions of position and status, which is further contributing to the reform, if not erosion, of hierarchy within organisations and society.
When thousands of Google employees walked out in protest around the world on 1 November 2018, their hashtag stated that ‘we need transparency, accountability and structural change’. These demands point to the likely path of hierarchy’s evolution.
John Child is the Professor of Commerce in the Birmingham Business School, University of Birmingham, and formerly Diageo Professor of Management at the University of Cambridge. His recently-published book on Hierarchy (Routledge 2019) addresses the issues discussed here in greater detail and provides a guide to supporting research.
AMBA members can benefit from a 20% discount on this book as part of the AMBA Book Club, click here for details.
