Advantages & Disadvantages of Hierarchical Structure

What Are the Advantages & Disadvantages of Hierarchical Structure?

Large businesses have been moving away from a traditional hierarchy in favor of structures that use a team approach or networks of outside suppliers. Yet, the hierarchical structure is the one most used by small businesses. Like most organizational structures, hierarchies have advantages and disadvantages; some of those depend on context. What might be an advantage for one business could be a disadvantage for another, based on the needs and goals of each organization.

Advantage: Clear Line of Authority

Using a hierarchical structure establishes clear authority for work and departments. Managers have authority according to management level and have the power to allocate resources, reward and punish behavior and give orders to their subordinates. No one is confused about the boundaries between departments and jobs, and everyone understands the chain of command.

This is an especially useful characteristic during a crisis, when decision-by-committee or subordinate hesitation could be disastrous. The boss gives an order and can expect compliance.

Advantage: Clear Lines of Communication

The hierarchical structure creates clear lines of communication. The lines establishing the relationships between managers and subordinates also provide communication direction. This approach gives departments a clear spokesperson: the manager. Subordinates know whom to report to and where to get information and directives. This serves to unify the department, resulting in coordination between its members.

Advantage: Clear Results

When organizing employees according to a hierarchy, it makes sense to organize them by job category. This allows employees doing similar job tasks to share the resources allocated by managers and for managers to coordinate similar efforts for great effect. This grouping sets the stage for efficient operations and cost savings through economies of scale.

Disadvantage: Isolation and Siloed Thinking

The same grouping that allows members of departments to work well together also isolates them from other sections of a company, reducing interdepartmental cooperation and communication. Departments can become indifferent to the concerns of other areas and develop tunnel vision. When acute, departments may put their own agendas ahead of company goals.

Disadvantage: Centralization of Power

Hierarchical structures centralize power and authority at the highest levels possible. For a small business owner, this can create some problems. Instead of making decisions on big-picture issues, planning and providing leadership, the owner may be caught up in the day-to-day operations, making decisions about things that are best left in the hands of those closer to the situation.

Disadvantage: Endless Red Tape

As a hierarchical structure grows, its hierarchy grows, too. Bureaucracies slow things – decision-making, communication, action – and the company becomes a lumbering, rather than spry, entity. The reason things slow down is because communication and requests must travel up and then back down the chain of command. Bureaucracy is most destructive in dynamic business environments that require quick action.