In a hierarchical structure, you have a company organized vertically, where groups follow a top-down decision-making approach, where most decisions flow from the top to the bottom of the organization. One example is Apple’s organizational structure today.
When does it make sense to have a hierarchical organizational structure?
A hierarchical organizational structure might be the rule for many traditional small businesses (take many family businesses, where the family is in charge, and decisions flow hierarchically within the organization) to larger corporations.
Usually, hierarchies tend to form the more people aggregate around an organization.
Thus, while hierarchies are pretty popular on a small scale, as they enable faster decisions (since there are fewer group discussions), they can also be popular on at large scale.
There is a tricky part of hierarchical structure.
When no added bottom-up forces are built within the organization, the hierarchy might collapse on itself, as employees at the base of the pyramid might not feel comfortable sharing their findings about changing consumer behaviors.
Hover time, this might translate into a loss of market dominance from the hierarchical player, which might lose control of the organization and employees’ morale.
How to balance hierarchy with bottom-up innovation
A key drawback of hierarchical structures is their top-down nature, which might constrain valuable information sharing, especially from the bottom.
Indeed, most consumer changes happening on the market are usually watched by people at the bottom of the organization who are much closer to the final customer.
Customer support representatives, which might not be hierarchically high within the organization, are an incredible source of understanding customers’ pain points and changing behaviors.
Thus, for a hierarchical organization to work at scale, either the top of the organization is also tied to the final customers (to say, customer support is also part of the top hierarchy), or it’s critical to establish bottom-up units, which can override the hierarchical organizational structure, to enable a flow of information from the bottom.
In other words, some people within the organization should be devoted to enabling the information to flow from the bottom to understand when breakthrough opportunities are coming.
But also when disruption forces are getting shaped in the market, which might suddenly deteriorate the organization’s competitive advantage.
Only by balancing out the top-down hierarchy with bottom-up forces it’s possible to create a competitive hierarchical organization, at scale, in the long run.
Read Next: Organizational Structure.
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