The organizational and management structures in use in nearly all medium to large businesses today either follow or are closely aligned with a top-down approach or a bottom-up approach. As you may suspect, these two management and organizational approaches are opposites.
Top-Down vs. Bottom-Up
In a top-down approach, strategic direction, policy and planning occur at or just below the highest level of a company. For example, a company’s board of directors may develop and pass down its expectations in the form of strategic plans. From the strategic plans, company management develops the policies and action plans required to meet the strategic goals and passes them on down to the line management and supervisors. In a bottom-up organizational approach, a company develops its policies, plans and directions from ideas, suggestions and solutions contributed from all levels of the company, inclusively encouraging employee participation in decision-making, problem-solving, and strategic planning.
The Top-Down Organization
A top-down management approach is more common in deeper or more vertical organizations that produce a specific range of products or services that don’t vary significantly from run to run, such as an automobile or a refrigerator. On the other hand, a bottom-up organization tends to be flatter in structure, with most or all employees reporting to one or a few top-level managers. A bottom-up approach is common to those companies that produce products that involve a high degree of creativity and design flexibility, such as software, websites or custom-designed products. In a top-down organization, the policy and strategic goals of the company emanate from the highest-level of the company, either the board of directors or the company’s chief executive officer (CEO). At the next level down, the strategic goals, which typically detail the vision the strategic planners have for the company in the foreseeable future, are translated into tactical plans. A tactical plan defines the specific metrics and organizational changes that must be achieved by each organizational unit (such as operations, sales, etc.) to meet the specified strategic goals. The tactical plans are then broken down into operational plans for each of the company’s operational units (such as manufacturing, purchasing, etc.). From the operational plans, each line supervisory or foreperson can define the specific objectives, quotas, and productivity goals for their operational unit (such as drilling, plating, etc).
Advantages and Disadvantages
The advantages of a top-down management approach are that the direction and activities of a company are focused on a specific set of objectives and goals and, because all of the company’s operational plans are derived from its strategic plan, it is easier to identify and correct any weak points in carrying out the plans. A disadvantage of this approach is that the organization may lack the ability to implement or benefit from the knowledge and experience of its employees on the lower levels.
Top-Down in Use
If a company produces the same types of products or provides the same basic service consistently, a top-down management approach is probably already in place. As a company grows larger in terms of its structure, scope and number of employees, it is either already in some form of a top-down management approach or is in the process of changing its approach to a top-down form. Many companies have evolved the top-down management approach into a hybrid that applies some of the bottom-up principles to the lower levels of the organization structure.