A hierarchical business structure is a traditional approach to organizing a business where emphasis is placed on top-down reporting relationships. A typical organizational chart outlines reporting relationships between employees and their supervisors, as well as functional interaction between employees that operate on the same level within the business.

Pro: Reporting Clarity

A common frustration for some employees is not knowing who they primarily report to. With an effective hierarchical structure, reporting relationships are clearly defined and each employee only has one direct report responsibility. This streamlines communication flow as employees provide feedback and suggestions directly to their manager, who decides what action to take or whether to continue its path upward.

In the same way, employees turn to supervisors who disseminate information within their work group or functional area. In smaller companies, close communication between employees and their supervisors is critical to business harmony.

Pro: Decision-Making Efficiency

What hierarchy lacks in employee involvement it offsets with efficiency. With more formally-defined roles and some separation between management and employees, decisions tend to be more autocratic.

This allows managers to make more timely decisions in urgent situations. If a purchase order needs to be completed quickly to get necessary supplies sent, an authoritative leader can act without much need for input. Similarly, there is less room for questioning directives that come from the owner or manager of the business.

Con: Concentrated Power

A drawback of hierarchy is that it can create too much distance between business leaders and employees. This is especially concerning in smaller organizations where close involvement between managers and employees is often preferred.

When too much authority lies in the hands of one leader or a concentrated group of leaders, power can set in. This may cause leaders to avoid internal feedback in deciding direction and strategy for the company. At the extreme, it could lead to corruption if leaders do not feel a sense of internal oversight on their actions.

Con: Limited Teamwork

The traditional hierarchical structure actually goes against the team-based structures that some businesses are turning to in the early 21st century. A formal hierarchy creates defined vertical and horizontal division in the company. This inhibits participative management. It also goes against functional or departmental team interaction.

As an example, if marketing is less likely to have a natural collaboration with the IT department, the company's website could suffer. The marketing department would have a better idea of how to promote the company and sell products in a user-friendly interface. This actually goes against today's trend toward more data-driven marketing efforts where the technology infrastructure