Why Is the Hierarchy of Authority Important in an Organization?

It's important to place your small business into a context. Your business probably resembles a vertical hierarchy with a clear chain of command or a horizontal organization -- which has a single layer of leaders and workers who work right below them. Some businesses combine vertical and horizontal structures. On some matters, it is crucial to have a hierarchy of authority. The question is how much authority you're willing to share.

Employees should understand their role in your company. They can examine their tasks and projects and learn their goals and performance standards. However, their role also limits them, according to your discretion, as to what decisions they should make without consulting you. The more written guidelines and training opportunities you provide, the more examples they will have of what you expect. However, too many guidelines can stifle their creativity and render them reluctant to make independent decisions.

Even if you have a flat organization with no managers, you need some kind of accountability built into every team. Some business owners do this by focusing on the team as a group of equals, and they select one leader to take charge but with no authority. Give each employee a list of individual performance measures in addition to their team's performance measures. Delegate some authority to the team leader, who needs a reason to motivate a team of equals, according to MindTools.com, an employment advice website.

Just as workers spend many years in the hierarchical environment of school, writes John Coleman on the Harvard Business Review Blog Network, they may enter the workforce with a concept of being the boss or following orders. Coleman points out that "even the most senior people in organizations can't rely solely on hierarchy...," and, therefore, your vertical hierarchy will need to have an appropriate place in the organizational culture you want to build. For example, you can rely on the vertical chain of command so that you can communicate your decisions clearly down the ranks and throughout the company. You need less emphasis on the vertical hierarchy of authority when you want employees to work as a team.

Some small-business environments, such as private doctor's offices, must maintain a high degree of accountability. You need to put a vertical hierarchy in place for the kinds of decisions that have legal consequences, such as when a physician designates only one nurse to write out his refills for patient medications. Set expectations for your staff if they must follow the vertical hierarchy for some kinds of decisions. Set consequences, up to and including termination, if employees do not follow those expectations. In other words, you must have a way to deter employees from making decisions independent of an established protocol. A vertical hierarchy of authority is only effective if employees follow the rules that define it.