Hierarchical organizational structure is a traditional approach to organizing human resources in a business where subordinates traditionally report to their line manager.
What is hierarchical organizational structure?
Hierarchical organizational structure is a type of organizational structure where authority is delegated from top to bottom.
Decisions are typically made at the top of the hierarchy and are then communicated down to the lower levels. It is often presented as a pyramid – different layers of the organization with fewer and fewer people on each higher level.
In this type of structure, there is a clear chain of command, with each employee reporting to a manager or supervisor. The position of workers in the hierarchy indicates their rank, status and level of authority. Those at the top of the hierarchy Chief Executive Officer (CEO) and Directors are the most vital to the organization as they carry the most responsibilities.
Features of hierarchical organizational structure
There are a few common features for hierarchical organizational structure:
- Chain of command. There is a clear and unbroken line of authority that runs from the top of the organization to the bottom.
- Centralized decision-making. Major decisions are typically made at the top of the organization, with lower-level employees having limited input.
- Specialization. Employees are typically specialized in a particular area of expertise.
- Formalization. There are a number of formal rules and procedures in place.
Types of hierarchical organizational structures
Organizational structures may be tall or flat, depending on the number of levels in the hierarchy. A tall structure of organization is more hierarchical, with more levels of authority, while a flat structure has very few different levels, but more people in each level:
- Tall organizational structure. Tall organizations, or vertical organizations, have many levels of management in the organizational hierarchy between workers and Chief Executive Officer (CEO). With greater levels of rigid hierarchy, tall structures have work processes formally regulated by rules and procedures. Decision-making and responsiveness are often slower because communication must pass through long chains of command on several layers. Greater sense of remoteness at lower levels. Workers feel alienated from senior management as there is large psychological distance between senior managers and workers at the bottom of the hierarchy. With more managers, the span of control for each manager is narrow meaning that tasks do not need to be delegated. There is greater specialization and division of labor with smaller teams that are generally easier to manage (organize, control, communicate), hence this can help increase efficiency and productivity. There are also greater opportunities for more people to be promoted as more levels exist in the organizational hierarchy can motivate some employees to work harder, therefore improving staff retention and labor productivity.
- Flat organizational structure. Flat organizations, or horizontal organizations, have only a few levels of management in the organizational hierarchy between workers and Chief Executive Officer (CEO). It is usually cheaper to operate because there are fewer managers to be hired due to fewer levels in the hierarchy. With lower levels of rigid hierarchy, flat structures do not have work processes formally regulated by rules and procedures. Decision-making and responsiveness are often quicker because communication passes through short chains of command on fewer layers. Greater sense of belonging at lower levels. Workers do not feel alienated from senior management as there is small psychological distance between senior managers and workers at the bottom of the hierarchy. With fewer managers, the span of control for each manager is wide meaning that tasks will need to be delegated. There are opportunities for subordinates to take on extra responsibilities and to develop their careers.
When is hierarchical organizational structure suitable?
Hierarchical organizational structure is often used when the business is organized by function, product (activity or customer) or region:
- Organization by function (process). Most businesses are organized by function with four different sections according to operations undertaken such as Marketing, Production, Finance and Human Resources (HR). Some businesses will also have functional departments in charge of Administration, Information Communication Technologies (ICT) as well as Research and Development (R&D). Each functional department will specialize to focus on just one business area with a designated Director being responsible for department resources and workers in each department clearly understanding their roles and positions in the business structure. However, as each department operates as a self-contained unit, there might be lack of communication with other departments and strong resistance to any change as workers will do things their own way. Organization by function may not be suitable for large companies with a diversified product range.
- Organization by product (activity or customer). Most large businesses with a broad diversified product range are organized according to the various types of products, activities or customers. Hierarchical organizational structure promotes specialization as each level has a relatively narrow focus. Often seen as a business within a business. Each division in the business will focus on its own product, the needs of a specific market segment or a particular product. This allows a business to organize itself into cost centers and profit centers for each division. Profit and costs for each division can be noted and action taken if a division is not performing. While healthy cooperation between divisions can help those divisions that are not performing well to become more competitive using some of the same resources within a department may start to be counter-productive, especially when duplication within departments takes places. And with too many divisions, senior managers may lose control over the firm.
- Organization by region. Many multinational companies are organized by geographical regions, so they can better respond to different local cultures and customer tastes as they vary in different parts of the world. Regional managers are in control of local operations in their respective regions which allows for smooth operations, but they will be accountable to directors in charge or their particular business functions. For example, manufacturing plant managers will be reporting to the Production Director based in the company headquarters. While healthy competition can be encouraged between different areas, intercultural conflict between local managers and upper-level management may hinder communication and cooperation.
Hierarchical organizational structure – Evaluation
Advantages of hierarchical organizational structure include:
- Clear lines of authority and reporting. A hierarchical structure clearly defines who is responsible for what, which can help to avoid confusion and duplication of effort. This is especially important in large organizations with many employees. Accountability for actions or decisions at different management levels. In a hierarchical structure, managers are accountable for the actions or decisions of their employees. This can help to ensure that employees are making sound decisions and that the organization is following its policies and procedures.
- Role of every employee clearly defined. The role of each individual will be clear and well-defined. There is a clearly identifiable chain of command. This traditional hierarchy is most frequently used by organizations based on a ‘role culture’, where the importance of the role determines the position in the hierarchy.
- Reduced risk of decision-making paralysis. In a hierarchical structure, decisions are made at the appropriate level of authority. This can help to prevent decision-making paralysis, which can occur in organizations with flat structures. A clear understanding of employee roles and responsibilities. Employees in a hierarchical structure know who their supervisor is and what they are expected to do. This can help to improve employee morale and productivity.
- Effective communication. A hierarchical structure can facilitate effective communication within an organization. This is because there are clear channels of communication in place, which can help to ensure that information is shared quickly and accurately. It shows the lines of communication with the organization. It establishes departments or teams that create a sense of belonging in the workplace so is a form of motivation.
- Clear career paths and development prospects. A hierarchical structure can provide employees with a clear understanding of how they can advance in their careers. This can help to motivate employees and retain them with the organization. The rungs on the career ladder for a keen and ambitious employee are illustrated by the different levels of hierarchy.
- Order and stability. A hierarchical structure can provide order and stability within an organization. This is because it is clear who is in charge and what the rules are. A hierarchical structure can allow employees to specialize in a particular area of expertise. This can help to improve the quality of work and increase efficiency.
- Adaptability. A hierarchical structure can be adapted to fit the needs of an organization. For example, an organization can add or remove levels of authority as needed. Divisions could be based on functional departments or regions or products. Many businesses are still organized in this way as decision-making power starts at the top, but may be passed down to lower levels. The vertical divisions do not have to be based on functional departments – they could be based on region or country or product category, for example consumer goods and industrial goods. A hierarchical structure can be scaled to fit the size of an organization.
Disadvantages of hierarchical organizational structure include:
- Slow decision-making. In a hierarchical structure, decisions can take longer to make because they must go through several levels of authority. Such a structure tends to suggest that one-way (top downwards) communication is the norm – this is rarely the most efficient form. Not pro-active – cannot cope with change!
- Lack of flexibility. A hierarchical structure can be inflexible, which can make it difficult for organizations to adapt to change. This type of structure is very inflexible and often leads to change resistance. This is because all managers tend to be defending both their own position in the hierarchy and the importance of their own department.
- Bureaucracy. A hierarchical structure can be bureaucratic, which can lead to red tape and slow decision-making. Managers are often accused of tunnel vision because they are not encouraged to look at problems in any way other than through the eyes of their own department. Staff may become isolated within their teams due to departmentalization.
- Limited employee autonomy. A hierarchical structure can limit employee autonomy, which can stifle creativity and innovation. There are few horizontal links between the departments or the separate divisions, and this can lead to lack of coordination between them.
Overall, hierarchical organizational structure can be a good option for organizations that need to be efficient, accountable, and scalable. However, organizations should also be aware of the potential drawbacks of this structure, such as lack of flexibility, bureaucracy, and limited employee autonomy.
