Rethinking Hierarchy

For all the hype and promise swirling around the idea of eliminating management to create agile, flat organizations, bosses and corporate hierarchies have remained extremely resilient. As we argued in the pages of MIT Sloan Management Review in 2014, under the right conditions, having such hierarchies in place is the best way to handle the coordination and cooperation problems that beset human interactions.1 They allow human intelligence and creativity to flourish on a larger scale. They provide a larger structure, with predictability and accountability, for specialists to do their work.

But that doesn’t mean traditional, command-and-control organizations are right for today’s environment. We see a confluence of business and social trends influencing the development of new kinds of hierarchies. Rapid technological progress, instant communication, value creation based on knowledge rather than physical resources, globalization, and a more educated workforce require us to rethink how we wield managerial authority. Meanwhile, individual views on politics, religion, and culture also inform our attitudes toward hierarchies — such as whether we value autonomy or admire authoritarian figures. All of these factors point to a new, different role for hierarchy to play in meeting the challenges of the 21st century.

The key challenge for designing and operating hierarchies today and tomorrow is to balance two opposing forces. The first is the desire, common to us all, for empowerment and autonomy, which helps companies mobilize employees’ creativity and exploit their unique knowledge and capabilities. The other is the need — particularly in environments characterized by rapid change and interdependent activities across the enterprise — to exercise managerial authority on a large scale.

Companies need clear, fairly enforced policies and procedures that achieve coordination and cooperation while respecting employee desires for empowerment and relative autonomy. Managers have to figure out when to intervene and when to let employees handle problems themselves.

These are tough issues without easy solutions. Which decisions should be decentralized (or delegated)? How much discretion should employees have over the decision areas delegated to them? How are these employees incentivized and evaluated? How do executives make sure that all these decentralized decisions mesh together? A central lesson of theories and evidence on organizational structure is that there are no universally “best” answers to these questions, only trade-offs that depend on the contingencies facing the company.