Companies that have a vertical organizational structure have many layers of management. When graphically represented on an organizational chart, this hierarchy creates a tall structure. Authority resides in a chief executive officer or owner at the top of the chart; employees form the bottommost tiers, with middle management in between. Hierarchical relationships are strict and rigid, jobs are set and specialized and the organizations have many rules. This structure gives companies a lot of control and the opportunity to efficiently standardize jobs and output. Such control, though, also has its disadvantages.

Lack of Innovation

The job specialization in organizations with the vertical structure leaves little room for creativity. Strict hierarchical authority also stands in the way of innovation. Visionary employees wishing to get the go-ahead for new ways of doing things must run the decision up the chain of command. Such constraints dampen the spontaneity needed for inspiration to spark change.

Slow and Inflexible

The same forces of bureaucracy create organizations that have difficulty adapting to a changing marketplace. The time it takes for decisions to be approved means companies with vertical structures are slow moving. In an unpredictable market environment, this poses a problem for tall organizations trying to compete against more nimble competitors.

Less Interdepartmental Cooperation

The purest vertical structure is the functional organizational structure, which segregates jobs according to work tasks. This segregation results in departments dedicated to one work function, such as accounting or customer service, fostering efficiency and savings due to economies of scale. However, by segregating this way, communication, cooperation and coordination among departments can suffer. Not only the functional organization but all vertical structures risk this disadvantage. The matrix structure tries to mitigate the risk by using teams to accomplish specific company goals. Teams are composed of representatives from different functional departments.


The characteristically strict boundaries between jobs, departments and hierarchical levels serve to insulate people and their groups from one another. Isolated people lack an understanding of what goes on in other areas of the company. They also can lose track of the larger concerns of the company itself. Without an insight into the needs and challenges of other areas, departments can even begin to compete with one another for company resources. Specialty areas can elevate departmental concerns over the objectives of the company.

Employee Well-Being

In tall organizations, the well-being of employees can suffer. The strong authority structure can remove a sense of employee empowerment and meaning. The layers of bureaucracy, meanwhile, can foster the sense of being a cog in a machine. Specialized, repetitive jobs tend to be boring, providing little job satisfaction. These factors discourage of a sense of employee investment in their respective jobs, leading to passive, indifferent involvement in workplace matters. Morale can be a casualty.