If the structure of an organization is a tall pyramid, it would be likely to have

What is a Hierarchical Organizational Structure?

A hierarchical organizational structure contains a direct chain of command from the top of the organization to the bottom. Senior management makes all critical decisions, which are then passed down through subsidiary levels of management. If someone at the bottom of this organizational pyramid wants to make a decision, they pass the request up through the chain of command for approval, for which a decision will eventually be returned. A hierarchical structure operates well when there are few products that are sold in high volume, so that tight control can be maintained over the design, quality, production, and distribution of goods.

For example, Horton Corporation develops a wildly popular super widget that is in strong demand in many countries. This widget is the only product that Horton sells. The president decides to tightly control the quality of this super widget by producing it in a single, large-scale facility, and selling it through a chain of distributors. This calls for a hierarchical structure to control all aspects of production and distribution. The distributors are allowed to engage in their own marketing activities, so this portion of the business is essentially localized and not under the control of Horton.

Advantages of the Hierarchical Structure

A hierarchical system allows a few people to control all aspects of an organization, which has the following advantages:

• Control orientation. When there are just a few key products being sold, or there is a specific marketing message to be distributed, the hierarchical system works well. For example, a high-end women’s handbag manufacturer will likely need to employ a hierarchical system in order to closely monitor the design and production of handbags. Similarly, a high-volume consumer products company needs to maintain a consistent worldwide brand image, and so needs to control all aspects of production, distribution, and marketing.

• Career path. There is a clear career path through this type of organization, with employees gradually advancing through the various levels of management over a number of years. Those reaching senior positions tend to have built up massive experience with the company.

• Clear reporting. Since power is so centralized, it is easy to determine who is authorized to make a decision.

• Specialization. Employees are more likely to have niche positions that allow them to become in-depth specialists. If their expertise is used effectively, this means that a company can have a number of centers within the organization where best practices are employed.

Disadvantages of the Hierarchical Structure

Though the higher level of coordination associated with the hierarchical system is useful in some instances, there are also a number of problems with it relating to the flow of information, the speed of decision making, and added costs. Consider the following issues:

• Restricted information. Information tends to flow toward the top of the organizational structure, so that the management team has a complete set of information with which to run the business. However, the reverse is not the case. There is very little downward flow of information to the lower levels of the organization, which tends to cramp any initiatives that might otherwise originate in these areas.

• Slow decision making. The hierarchical system takes time for management decisions to percolate down through the various levels of management and be enacted. If a company operates in a swiftly-changing environment, this can mean that the business is slow to react to competitive and environmental pressures, and so can lose market share.

• Added costs. A hierarchical system requires a considerable amount of corporate overhead to support the senior management group, including extra layers of management, internal auditors, budgeting and control departments, and so forth. This can be an excessive burden on profits when the bureaucracy is especially bloated.

In general, there is a trend away from the hierarchical system and toward a decentralized organizational structure. This trend is primarily driven by the speed with which decisions must be made, since many markets are now highly competitive and require lightning-fast decision making. This does not mean that the hierarchical system is entirely outmoded – on the contrary, there are a number of businesses that require tight control over limited product lines, and which therefore continue to operate well within this structure.

Hierarchical vs Flat Organizational Structure

An organizational structure defines how a business manages activities and tasks such as management and supervision, resource allocation, human resources, projects, and a multitude of other things. The structure of an organization is therefore crucial for enabling it to achieve its goals, performance and growth targets, and operate efficiently.

While there are many examples of different organizational structures that exist (with some businesses even opting to create their own bespoke ones), there are two that reign supreme in terms of their popularity and overall use: the hierarchical organizational structure and the flat organizational structure.

What is a Hierarchical Organizational Structure?

A hierarchical organizational structure is one that resembles a pyramid, where authority cascades down from a single person at the top to different levels of management and supervision. It’s also commonly referred to as a company’s “chain of command” where general employees sit at the bottom and executives sit at the top.

Hierarchical organizational structures tend to be seen more within government agencies and large companies where there are large numbers of employees and widespread operations. This is because the hierarchical structure is better able to accommodate organizations of this size while remaining workable with clear lines of authority.

For example, let’s say a company has 200 employees. The CEO will sit at the top and below the CEO will be other key executives in charge of an area like operations or finance. Below these executives will be groups of employees sorted into different departments. These departments will have their own managers, and departments may have sub-teams led by mid-level managers or supervisors.

The company therefore has multiple levels, with the person at the highest level wielding the post power.

Advantages of a Hierarchical Organizational Structure

A hierarchical structure, if used correctly, can come with many benefits—that’s why it has proven so popular among some of the world’s leading organizations. Here are some of the key hierarchical organizational structure advantages:

Clear Authority & Levels of Control

Companies that operate with a hierarchical structure have clearly defined levels of authority and power. This means that all employees will have their own direct supervisor or manager to whom they report, even managers sitting higher up in the chain of command.

This makes communication a lot easier and ensures that employees know exactly who they need to report to. This naturally enables better employee management and much higher levels of efficiency thanks to clearly defined work roles and scope of authority among leaders.

And because the scope of authority among leaders is clearly defined, the hierarchical structure also helps employees understand the different levels of management and leadership and why they’re important.

Clear Promotion Prospects

A hierarchical structure makes it easier for employees to figure out the various lines of authority and figure out how they might be able to advance in the company in the future.

By being able to visualize their potential promotion prospects, employees will likely have higher levels of morale and be much more motivated to perform well, meet their targets, and contribute to the company’s overall productivity and profitability.

A hierarchical structure also encourages employees to pursue any additional qualifications needed for specialized roles.

A Stronger Culture & Better Team Focus

Companies with hierarchical organizational structures are divided into different departments and teams. This helps strengthen corporate culture and place more of an emphasis on teamwork, meaning that everyone within is working towards a common goal.

Strong culture and teamwork also instill a sense of team loyalty among your employees, something which can lend a big boost to an organization’s long-term success.

Disadvantages of a Hierarchical Organizational Structure

At the same time, it’s important to consider the key disadvantages of the hierarchical structure:

Slower Decision Making & Communication

Bureaucracies aren’t known for their agility. As a hierarchical organization grows, things begin to slow down. This is because requests, decision making and communication must flow up and down the chain of command, usually several times. In a dynamic business environment that lives and dies on efficiency, this can be destructive.

It’s also important to consider that hierarchies centralize power at the highest levels. For smaller organizations that are still in the growth stages, this can lead to the business owner being far too involved in day-to-day operational decision making and neglecting the bigger picture.

Team Rivalry

The very same grouping of employees into departments and teams that can foster a strong culture and teamwork can also lead to isolation and siloed thinking. This is because the hierarchical structure naturally isolates people from other parts of the company, reducing cooperation and communication between different departments and teams.

Over time, these different departments and teams can become ultra-focused on their own affairs and grow indifferent to what’s going on in other areas. This runs the risk of departments and teams prioritizing their own agendas over the bigger picture.

Inherent ‘Us vs. Them’ Mentality

Not everybody likes the idea of a hierarchy. For employees that would rather everybody work together as equals, the idea of multiple levels of management can instill a dangerous us vs. them mentality among these people, where they as employees lower down the corporate food chain feel less empowered.

Hierarchical Structure Example

Here is a simple example of a hierarchical organizational structure that has been built using Organimi’s organizational chart builder. It shows how even at a managerial level, there can be multiple lines of authority, with the CEO & Chairman holding the most power.  

What is a Flat Organizational Structure?

In comparison to a hierarchy, the flat organizational structure is much leaner. It’s a short, wide structure that usually eliminates middle management and adopts a more casual, people-first approach that provides regular employees with far more autonomy and a say in decision making.

Flat organizational structures are seen more within smaller organizations and start-ups that perhaps don’t have the numbers or operations that would warrant a hierarchical arrangement. In fact, the flat structure has proven so popular and beneficial that there are plenty of examples of organizations retaining their flat structures even as they grow.

Advantages of a Flat Organizational Structure

Many organizations benefit massively by using a flat structure to eliminate the multiple layers of management that exist between executives and upper management and regular employees:

Reduced Operational Costs

In a flat structure, more decisions are made by regular employees; there’s less of a focus on executives making all the decisions and then filtering this down through multiple managers because these managers don’t exist. Flat organizations typically only have high-level managers such as executives, so operations are far leaner.

This means that the organization doesn’t have the expense of having to hire mid and low-level managers. The money that’s saved on not having multiple managerial levels can be invested into other important operational areas, such as product development and sales.

Less Micromanagement

Anybody that’s worked at a larger organization where there are multiple levels of management is bound to have experienced micromanagement at least once, where these managers look at, scrutinize, and weigh in on virtually every detail of the tasks that regular employees are working on.

Not only is this annoying but it can hinder creativity and efficiency when employees feel as if they’re unable to do anything without every one of their managers chiming in with their two cents worth.

In a flat organization, this doesn’t happen. This isn’t only because there are fewer managers but also because employees in a flat organization are given far more freedom and autonomy to make their own decisions without management weighing in on every little detail.

Streamlined Communication

One of the major disadvantages of a large and complicated hierarchical structure is the impact that it can have on communication. And the bigger and more complex a hierarchy becomes, the slower communication gets. This is down to the number of layers that exist between regular employees/low-level managers and mid- to upper-level managers/executives.

In a flat organization, however, employees communicate with managers directly without having to go through several intermediaries first, such as multiple layers and assistants. This not only makes communication faster but reduces the chance of this communication getting muddled and confused as it passes through multiple busy people.

Disadvantages of a Flat Organizational Structure

“Give somebody an inch and they’ll take a mile” is a saying that comes to mind when we think of flat organizational structures. When executed properly, a flat organization can be a dream. But with lots of autonomy comes the risk of management losing control. Here are some of the other key disadvantages:

Limited Promotion Prospects & Retention Issues

Most people want to be promoted and climb the corporate career ladder. Why wouldn’t they? Promotions bring better benefits, more pay, a wider influence, and enhanced employment prospects should an employee choose to leave an organization.

In a flat organization, employees who have their heart set on promotions may find it hard to find job satisfaction due to the very few managerial levels and promotion prospects. This may make it difficult to retain employees who have their heart set on climbing the ranks, as these people may leave for a job somewhere else where there are realistic promotion prospects.

It Requires a Specific Type of Leader

A flat organization requires a different ‘type’ of leader for it to be successful in the long term, and those without the right person at the helm could find the flat structure to be more of a hindrance rather than a help.

This is because flat org leaders are tasked with far more responsibility, face more challenges, and generally need a broader skillset than hierarchical leaders who can delegate a great deal of their workload to those lower down the chain of command in specialized areas.

The flat structure can also present a challenge for employees who struggle to keep pace with sudden changes. Ambiguity and role confusion can sometimes exist, too, because employees in a flat organization tend to have less clarity surrounding what exactly it is that they do as part of their day-to-day. These are all things to be mindful of.

It Can Lead to Power Struggles

In the absence of clearly defined roles, mid-level management, and direct supervisors and line managers, power struggles are afforded the perfect breeding ground.

This tends to happen where managers get confused about what their remits are, especially if the CEO isn’t around to provide guidance, and struggle with one another for control. It can also happen among the general employee pool where there are no supervisors or line managers.

If power struggles are left unchecked, they can erode motivation, stifle efficiency, and harm your culture.

Build Your Organizational Chart with Organimi

We think that the best way to decide which organizational structure is right for your business is to put theory into practice and experiment with building your own charts.

Start by signing up for a 14-day trial of Organimi and using our drag-and-drop organizational chart builder to map out and experiment with your structure.

What is a tall organization structure?

What is typically true about an organizational structure that is tall?

Which is an advantage of a tall organizational structure?

What is tall structure advantages and disadvantages?