Hierarchical Corporate Structures and the Alternatives I

For companies to function, they have to establish some sort of order. Mostly this is carried out by using hierarchical structures. Leaders in my seminars always laugh out loud when they hear what the word hierarchy actually means in translation.

Holy Order in Companies

The word hierarchy is of ancient Greek origin and means "holy order". A hierarchy thus denotes elements that are superior and inferior to one another, whereby this order is "God's will”. In this sense, hierarchical organizational structures are systems which may under no circumstances be called into question. They have the advantage that - at least in theory - there is always someone who bears the responsibility. If conflicts cannot be resolved through social interaction, the previously defined hierarchy decides who is authorized to make decisions. As a laconic saying of company leaders goes: "Rank trumps."

In larger organizations, hierarchies are linked to specific, differentiated functions that employees perform. These functions are defined in job profiles, which contain a description of the areas of responsibility and authorisations of the respective employee. In addition, they are backed up with competence models that are used to document the necessary knowledge and skills. This provides clarity and transparency, but also requires the employees to conform to their job descriptions to a high degree and is not a very flexible model for dynamic situations or change processes.

Functional hierarchies provide transparency as to who reports to whom or who may make decisions in the event of differences of opinion or conflicts. The theory behind this is that decisions can be made more quickly by a hierarchically legitimised authority than would be the case under democratic conditions, for example. So much for the intention.

In practice, the picture is often quite different, as I heard again recently from a group of committed young executives of a large service organization. Decisions are often not made at all, or at least they are a long time coming. This demotivates ambitious young employees. In addition, decisions are often made by people who are far removed from what is happening at the operative level. In this context, the employees pointed out that decisions are often also of poor quality because not enough time is spent discussing their consequences.

Many organisations are aware of the disadvantages of these hierarchical management structures and try to counteract them. In most organisations, acting independently and on one's own responsibility is an important corporate value. Under the motto of empowerment, company managements encourage their employees to take on more responsibility. Individual decision-making authority is also located further down the hierarchy. Occasionally, the number of hierarchical levels is also reduced to make information channels shorter.

However, companies often do all this without questioning the hierarchical principles themselves. However, this seems to have been changing in recent years. There are a number of organisations that apply the concept of innovation not only to their products and services, but also to their internal design. They experiment with the design of their own structures and question everything - including the functional and hierarchical principles that underlie the way their employees work together.