Hierarchical Structures: Definition, How it Works and Examples

By Indeed Editorial Team

Updated 8 November 2022

Published 20 May 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A hierarchical organisation structure comes with a simple reporting system that allows subordinates to understand their duties and responsibilities easily. Business owners can use this structure to ensure smooth operations and more clear reporting structures. It works well in most workplaces and comes with many benefits for large organisations. In this article, we'll talk about the hierarchical structure and its advantages and disadvantages.

What is a hierarchical Structure?

A hierarchical structure is an organisation structure that follows a chain-of-command from the top executives to regular employees. It resembles a pyramid, and the individual with the most authority occupies a sole senior-most position above the pyramid, while the junior-most workers occupy the positions at the bottom. Its vertical chain of command has distinct reporting structures, and everyone in the company knows their place. Hierarchical structures often work well in large cooperations and organisations with many departments to perform different duties.

How a hierarchical structure works

In a hierarchical structure, employees have unique roles that interconnect and contribute to the goals of the company. Executives divide the employees into groups, with each having a manager or managers who directly supervise the group of employees under them. The managers report to other senior executives above them, leading to a pyramidal chain of command. Depending on the size of an organisation or stages of management in the middle, the typical structure can either be flat or tall.

The senior leaders of an organisation form a C-Suite which can comprise the chief executive officer (CEO), chief financial officer (CFO) and chief operating officer (COO). Senior executives make big decisions for the organisation. There are also directors who run various departments of a company and make strategic decisions that ensure that their departments meet the set objectives. Some common departments include marketing, IT, finance, accounting and HR. Directors are in charge of managers and give instructions to them. Managers relay the instructions to and supervise low-level employees as they perform their duties.

Related: How does team structure impact effectiveness? A useful guide

Advantages of hierarchical structures

Here are the top advantages of a hierarchical organisation structure:

Control orientation

A hierarchical system works well in companies that sell products or services in the B2B industry. For example, if your company manufacturers luxury clothes, you can use a hierarchical system to ensure that employees design all clothes to quality standards. This work requires monitoring at each level and several managers to oversee different departments. Similarly, if your company produces, distributes and markets high-volume products, there would be a need to maintain a consistent brand image worldwide.

Clear reporting

Using the hierarchical management structure, it's easy to know who's in charge and follow the chain of command. It centralises power and management operations, which makes it easy for employees to know who they ought to report to, as there are distinct decision-makers in each department. There are fewer questions asked regarding operations as employees execute all orders that come above them.

Distinct career paths

Employees can easily identify what positions they can be promoted to. This means that all employees are well-versed in their career paths. They know how they may advance to the top after consistently performing well at the company. It is easy to gain experience and grow through the ranks in a hierarchical structure.

Related: 10 simple and practical steps for starting new career paths

Opportunity for specialisation

Since the company has defined departmental divisions within a hierarchical structure, employees have unique duties in their departments. This allows them to specialise in specific jobs and perfect their skills. When they use their expertise effectively, the company may have several internal centres where employees can specialise for maximum productivity.

Related: A guide to choosing a specialisation in education

Department loyalty

Employees in a company with hierarchical management work in unique teams within the various departments. Employees in the same team develop a sense of loyalty and team spirit. This engenders productivity as employees group together to accomplish set goals faster and effectively.

Disadvantages of the hierarchical structure

Here are the top disadvantages of a hierarchical structure

Restricted information flow

Most information in a hierarchical structure flows up the chain of command. This means that the top executives have all the details they need to run the company. However, the reverse flow of information is reduced because of the authoritative design of the structure. As a result, initiative efforts that could raise at lower levels of the company are reduced.

Decision-making can take longer

There are several leadership tiers in a hierarchical structure, which slows down the speed of decision making. Most of the leaders have to be involved in decisions that affect the entire company's operations, hence meetings that take time to plan and hold have to be convened. It also takes time to get all the decision-makers to agree on one thing as they all have different personalities, diverse growth ideas for the company and diverse opinions. On the contrary, a company led by one executive will have fast decision making and implementation since their decision is final.

Related: What are business legal structures? (With examples)

Additional costs

There is a considerable amount of corporate overhead required to support the senior executives in a hierarchical structure. The costs are even more when a company has extra layers of management such as internal auditing departments and budgeting and budget control departments. This will mean that a lot of profits will be incurred as operational costs to pay salaries and cater for all the perks that the senior executives get.

Communication difficulties

There could be a lack of communication between the different departments and levels. Each supervisor or manager will concentrate on their own team and limit the transfer of information to other levels of management or departments. Supervisors will also run their employee groups uniquely. As a result, if an employee switches from one team or department to the other, the chances of confusion are higher.

Related: 12 ways to improve communication at work: a helpful guide

Departmental rivalry

A hierarchical structure could pit teams, management levels or departments against each other. This happens when the departments or teams decide on how to grow singularly rather than to empower the entire organisation. Managers can also compete for promotions leading to serious rivalries. Such rivalries could hurt the company in the long run or cause inhospitable working conditions.

How other organisational structures differ from the hierarchical structure

Other than the hierarchical structure, there are several other organisational structures that companies implement. Most have strengthened with the changing needs of modern business operations and could be practical for your company. Below is how such structures differ from the hierarchical structure:

Matrix structure

A matrix organisational structure involves a setup where the reporting relationships resemble a grid or matrix. This is as opposed to a pyramidal arrangement that is typical in a hierarchical structure. In the matrix system, employees with similar skills occupy a single working pool when handling various assignments. They then report to different managers, which breeds a cooperative, rather than an authoritative work environment.

This form of management structure results in a less formal organisation. It enables employees to have reporting structures for work-related matters and others for organisational matters. This is because the structure can accommodate working-level managers who handle work-related issues and hierarchical managers who can deal with organisational or disciplinary matters. However, there must be clear directions for such reporting structures to avoid confusion.

Horizontal/flat structure

This organisational structure is common in small companies or startups that are yet to develop. It eliminates a lot of the levels of middle management common in a hierarchical structure and empowers employees to make fast and independent decisions. It suits a well-trained workforce well since the employees look to get involved in making day-to-day decisions.

This structure is also highly transparent since almost all employees operate at the same level. It improves information flow across the workforce and employees answer for the repercussions of the decisions they make. However, this structure is difficult to implement in a large organisation with many employees.

Related: What is horizontal integration? (Plus how to implement it)

Network structure

A network organisational structure visualises how top-level management and other managers interrelate both internally and externally. It is less hierarchical and ensures decentralisation of authority and is more flexible than many other organisational structures. It is based on social networks and ensures a bottom flow of decision making. However, its complexity can make its application an arduous task.

Divisional structure

A divisional organisational structure divides the company into several divisions that represent different products or geographies. Each division then operates as a full company on its own with a complete individual hierarchical structure. The Independent operational flow ensures that other company branches continue to operate seamlessly when any of the other branches fail. Its drawbacks include the separation of specialised functions causing operations inefficiencies.

Team-based structure

A team-based organisational structure incorporates teams working together to achieve a common goal while handling individual duties. It is flexible and less hierarchical to enhance decision making, teamwork and problem-solving. It emphasises the importance and value that each employee has to the company despite the complexity or simplicity of their duties. It also allows individuals from all over the world to collaborate and produce goods or services. The teams can change over time as the company's goals change.

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