There are five types of organizational structures: the traditional hierarchy, flatter organizations, flat organizations, flatarchies and holacratic organizations. A hierarchy is set up so that there is a chain of command. Instead of having everyone report to one boss, in other words, workers report to supervisors, who report to their supervisors and on up the line. Although there are benefits to a hierarchical organizational structure, it does have a few limitations, making it not the right fit for every type of business.
What Is a Hierarchical Organizational Structure?
Think of a hierarchical organization as a pyramid, with your CEO or director at the top, a layer of managers under that person, an even bigger layer of workers under that group, until finally, you arrive at the bottom layer of the pyramid. If a business has a flat structure, a director might bring in every employee to discuss an upcoming project or brainstorm an upcoming marketing campaign. In a hierarchy, that same director would meet with his management team, who would then pass the information down to their own employees. If those employees are also managers, they would continue the information funnel by passing on what they’ve learned. If the director sought input, that could be passed up the chain, as well.
The best thing about a hierarchical structure is that it distributes the workload more evenly down the chain. A CEO or director doesn’t have to directly manage every employee in his organization. Instead, he can trust his subordinates to handle that, and those subordinates can delegate some of their duties, as well. Ideally, employees will have a direct contact who guides them as they strive to do better in their jobs. Unfortunately, it doesn’t always work this way. One small break in the chain can cause communication to break down, employees to grow disgruntled and managers to feel frustrated.
Although it’s easy to associate a hierarchical state with a large corporation, leaders interested in this setup can start preparing from the beginning. This means as you add employees, consider where they’ll fall on the hierarchy. You may need an app developer before you need a manager, for instance, but that means you’ll need to start thinking toward hiring a manager to oversee that developer, along with any others you hire in the years to follow. You can then slowly expand your leadership team at the same time you’re adding lower-tier employees.
You won’t just be able to outsource day-to-day instructions and big decision-making to your leadership team. You can also entrust these professionals to take care of hiring, firing and disciplining employees. If you hire a manager with an expertise in his subject matter area, he’ll be the best to hire underlings in that specialty. You’ll not only get better employees this way, but your managers will have an investment in the employees they choose, making it more likely they’ll want to nurture their careers.
What Is a Hierarchical Organizational Chart?
If you ever want to determine whether your organization is hierarchical or another of the five types, all you’ll need to do is take a look at your organizational chart. A flat, wide org chart is a sign that you don’t have a hierarchical structure. For a hierarchy, you’ll want to ensure a vertical structure, with fewer employees reporting to each manager.
There are two ways to create a hierarchical structure: top-down or bottom-up. If you choose a top-down structure, you’ll put the bulk of the control in the hands of those at the top of the chart, making those positions more responsible for high-level decisions. A bottom-up structure means freeing up those who are at the bottom of the org chart to make decisions without having to constantly look up the chart for guidance.
When it comes to top-down or bottom-up, the truth is that there is no “one size fits all” as you’re trying to design an organizational structure. Top-down organizational charts often work for businesses that have lower-tier employees doing repetitive, mundane tasks. If, for instance, you run a manufacturing plant, you’ll likely need top-down control so that those working the assembly line have guidance and oversight in the work they do. The casual work culture so many businesses prize today often calls for more of a bottom-up culture, since it gives employees the freedom they need to use their own discretion in how they approach various tasks. It also is more likely to make them feel engaged, especially if they’re encouraged to contribute to the decision-making process.
Although there are many templates available to help you achieve a hierarchical structure in your business, you can use any org chart software to set up a hierarchical chart. If you have shareholders, they’ll be at the top, with your board of directors slotted in just beneath that. The director will be beneath the board of directors, and at that point, the chart will begin to widen. All of your managers will go underneath the director, including your marketing manager, applications development team manager, business development manager, HR manager, COO, CTO and any other team leader. These will act as the top of multiple silos that showcase the employees who will work under that team leader. You could have entire teams reporting to one leader. Your CTO may manage your entire app development, help desk, security and project management team, for example.
What Are the Advantages of a Hierarchical Structure?
Time is the biggest benefit of a hierarchical structure. Since time is a rare commodity for many business leaders, this can be a definite draw. When a business has a hierarchical structure, information can be passed down, which means your director only needs to meet with her own direct reports. Those direct reports can then pass the information on. Generally speaking, that also means that if an employee has a question or concern, that person will go to her own supervisor, who can then pass the concern up the chain if necessary. Instead of a daily parade of employees in her office, the director can focus on other duties, including growing the business.
Another great thing about these types of organizational structure is that they allow each leader to focus on her own specialty area. Instead of having to be an expert in every area, this means directors can bring together all of this expertise in regular management meetings. A business that employees a team of engineers, for instance, can simply pull in the head of that team to discuss big-picture issues, with the team entrusted to carry on day-to-day operations in between those meetings.
In addition to being beneficial to the organization as a whole, a hierarchical structure can be motivating to employees. They can clearly see the path to the top and strive for that position. An entry-level accounts payable clerk will work under a team of HR leaders who can guide her in her own specialty, helping her learn what she needs to know to someday advance into HR management. If she chooses to stay with the same company, her career path will be laid out in front of her. This also benefits the organization as a whole, since employees may choose to stay and work their way up the career ladder rather than leaving to work for a competitor.
An additional benefit of a hierarchical structure is that employees are more likely to understand the role they play within the organization. Since everything is so heavily defined, as is clearly visible in the business’s org chart, they know where they stand within the organization and how that relates to all of the other employees. They also benefit from a camaraderie that comes from working with others who share their own specialization. Team leaders can act as mentors, in a sense, and can also foster that camaraderie by encouraging everyone to collaborate and help each other.
Contrast this with a flatter organizational structure, which encourages much more flexibility but can lead to confusion. Employees may not know exactly what to do if they have a problem. Even if a director promises an “open-door policy,” not all employees will feel comfortable going directly to the top person in charge with a seemingly small complaint. As a result, workers may feel as though they don’t have the support they need in their daily activities, which can lead to low morale.
What Are the Disadvantages of a Hierarchical Structure?
Not everything about a hierarchal setup is good, though. A management structure that encourages a chain of command can feel too restrictive, especially if leaders aren’t skilled at bringing in managers who are good at motivating and guiding employees. One bad manager could cause serious issues for a business, leading to a costly turnover and a reputation for having a toxic work environment. Since bad employee reviews can haunt a business for years online, that can make future hiring efforts challenging.
Another disadvantage is that you can easily have a communication breakdown that severely derails a project. Your director may meet with his managers and provide crucial information designed to be passed on to each team. But if even one manager neglects to share that information, everyone won’t be fully informed. Over time, those miscommunications can add up, leading to repeat missed deadlines and misunderstandings. The result is at least one or two employees who feel left out and frustrated.
As many businesses find when it’s time for budget cutbacks, a hierarchical organizational structure can create plenty of unnecessary positions that cost a business money. If you have managers reporting to managers reporting to managers, you’ll find that some positions exist merely to pass information from one group to another. Since mid-level manager salaries aren’t cheap, you’ll probably find that you’re spending far more money than necessary for the convenience of having more time to focus on other things. This issue is exaggerated as a business grows and the organizational chart grows wider and longer. Before setting up this structure, ask yourself if it’s necessary to have a manager over every department. It’s possible you can get away with only a couple of midlevel managers and put the rest of your payroll dollars into workers.
You may also find morale drops as your employees feel isolated from everyone else in the organization. When you operate in silos, those in one silo tend to be disconnected from the others. This comes at a cost, especially if you have teams that could benefit from working together. Your sales and marketing teams, for instance, could help each other by combining analytics and strategizing. But if you’ve encouraged them to work independently by setting up separate departments under different managers, you won’t have that collaboration. If you choose a hierarchical structure, it’s important to monitor results on an ongoing basis and decide if it’s working the way you originally intended.
- Hierarchy Structure: Small Business Management Hierarchy
- Accounting Tools: Hierarchical organizational structure
- Forbes: The 5 Types Of Organizational Structures: Part 1, The Hierarchy
- Organizational Physics: Top-down vs. Bottom-up Hierarchy: Or, How to Design a Self-Managed Organization
- LucidChart: Hierarchical Organizational Chart Template
Stephanie Faris is a novelist and business writer whose work has appeared on numerous small business blogs, including Zappos, GoDaddy, 99Designs, and the Intuit Small Business Blog. She worked for the State of Tennessee for 19 years, the latter six of which were spent as a supervisor. She has written about business for entrepreneurs and marketing firms since 2011.