A hierarchical organizational structure is a common way to organize a business. It creates a vertical structure where every person within the organization, except one, is a subordinate to another single individual or entity. The person with the top rank appears at the top of the structure, which is often visualized as a pyramid, with direct reports then coming in descending order as the various company teams are included.
Some hierarchical structures are shaped into tree-like diagrams, which creates more of an organization chart for the company. Those with the most power would be placed at the top of this chart, while those with the least power would appear on the bottom.
For an entry-level position, it is entirely possible to be excluded from the organizational chart unless there are direct reports associated with the job responsibilities.
There are several advantages and disadvantages to consider when evaluating a hierarchical organizational structure. Here are the key points to consider.
List of the Advantages of a Hierarchical Organizational Structure
1. It creates a defined structure for communication.
Within a hierarchical organizational structure, clear lines of communication are established for everyone. Employees in entry-level positions would receive their daily assignments from their direct supervisor. The direct supervisor is responsible for interpreting orders coming from their supervisors. That process continues moving upward until it reaches the top individual in the structure. This makes it easier to plan and implement business strategies quickly, assuming employees stick to the structure.
2. It offers multiple layers of authority within the company.
A hierarchical organizational structure communicates to internal and external parties about who holds what authority within the business. As more authority is granted, more responsibilities are typically assigned. This creates a clear structure for reporting, allowing for consistent movement of information up and down the chain of command. For those who are looking to advance their career, this chart creates a path that they can follow.
3. It establishes a clear picture of authority.
Within the hierarchical organizational structure, there is a clear picture of who has authority and who does not in the organization. This makes it easier to identify which managers have the power to allocate resources, reward successes, or initiate disciplinary action proceedings. There is no confusion about who is in charge and who is not in charge, which can be very useful during crisis situations.
4. It identifies places where duplication may exist.
The hierarchical organizational structure makes it possible to identify which teams share resources. It finds places where there may be job responsibilities which overlap, costing the organization money. Although this may cause employment losses over time, it creates more efficiencies within the financial profile of the company, setting the stage for growth within an economy of scale over time.
5. It allows for specialization.
When there isn’t an outlined structure in place for an organization, it tends to cause managers to be responsible for a variety of different tasks. That is especially true for small businesses, where one manager might be responsible for marketing, human resources, and purchasing. When there is a hierarchical organizational structure in place, it allows managers to divide responsibilities to the people in a logical way, creating an additional layer of efficiencies.
6. It eliminates issues of indecisiveness.
Within the hierarchical organizational structure, there is always someone who is held responsible for the actions or decisions that are made. There is no hiding from this accountability, even if one manager attempts to assign blame to someone else. There is clear communication about who is in charge of what projects. This design also makes it easier to keep track of ongoing activities, the status of projects, and the quality of work that is being completed.
7. It takes the pressure off the entry-level worker.
In this type of structure, the power of decision-making is consolidated at the top of the company. That means owners, founders, CEOs, and similar positions are responsible for making the organizational decisions which affect everyone. In theory, these decisions should be made in consultation with a senior leadership team. For the entry-level worker, that means the only stress placed on them are the deadlines they are required to meet.
List of the Disadvantages of a Hierarchical Organizational Structure
1. It may cause a lack of collaboration.
When there is a hierarchical organizational structure in place, teams tend to stay within their defined structures. Collaboration within a team still happens. Collaborating outside of a team silo can be difficult to accomplish. People tend to stick together, competing for power, instead of working together as a whole to advance the mission of the company.
2. It can cause managers to become territorial.
Within the hierarchical organizational structure, managers often become territorial about their power within the company. They become defensive if other managers start trying to work with their employees. Instead of looking at an organization-level issue with a clear mind, they might approach the situation from the perspective of their department only. This creates a competition for power which can be destructive for everyone involved.
3. It may reduce internal innovation.
Clear reporting structures within a hierarchical organizational structure help a company be able to keep information moving. It also creates a rigid structure which may limit innovation. If an employee approaches their direct manager with an idea, which is rejected out-of-hand, then it discourages the employee from sharing further. If that idea would have been accepted at a higher level in the organization, it could impact future revenues. That is why a bypass of the structure for sharing ideas is essential to the success of this traditional structure.
4. It centralizes the power structure.
The hierarchical organizational structure works extremely well for large companies. It can be a challenge to implement it on the small business level. That is because the structure can cause some owners to begin being involved in the decisions of daily operations. It may encourage a lack of delegation, which reduces the overall productivity that is available. Instead of putting leaders in charge of big-picture decisions, it can encourage some to be involved in the real-time implementation of needs.
5. It creates a lot of bureaucracy that must be managed.
When a business begins to grow, the hierarchical organizational structure must also grow. When there is more bureaucracy, the pattern of growth tends to slow down. In time, that can cause a company to become too top-heavy with their organizational chart, which makes the organization less responsive when fast decisions must be made. Requests are forced to travel up the chain of command, then back down again, which can be destructive when dynamic movement is required.
6. It may create communication barriers.
Although the hierarchical organizational structure is intended to improve communication, it may hinder it instead. Some companies do not permit workers to skip layers within the chain of command. That may cause some workers to avoid communicating at all because they distrust their direct supervisor. It can also cause teams to create their own jargon, which makes it difficult to communicate internally. It is not unheard of to have teams purposely withhold information because it would benefit someone other than themselves.
7. It can create confusion.
When a manager is not available within the hierarchical organizational structure, there is a void that must be filled for the benefits of this structure to be maintained. If a manager does not fill this void, a team member will often try to step into the role. Even if the manager has left on vacation for a day or two, this change in leadership can create confusion when the wrong people step into the chain of command. There must be a clear policy in place which dictates who replaces a missing manager to avoid this confusion.
8. It creates a structure of unequal treatment.
The hierarchical organizational structure should have the base of the pyramid at the top and the point of it at the bottom. That is because the work of the entry-level workers is what allows the organization to operate properly. Far too often, the top of the pyramid is given far too much respect, while those at the bottom of the pyramid are given far too little. When there isn’t equality in the respect being provided, workers become less motivated, they can become less respectful. They may even decide to quit, which is problematic if that person is a high-skill worker or key employee. These issues become even more problematic if the leadership team is awarded perks that may not have been earned.
The advantages and disadvantages of a hierarchical organizational structure involve communication, innovation, and collaboration. There must be strategies in place to deal with the potential negatives which like to occur under this structure. If no effort is made to deal with the negativity, then a company becomes more likely to fail because its people are siloed into their specific roles, afraid of what may happen if they try to move forward.