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Contemporary organisations exist in a highly dynamic climate in which high employee turnover, changing market demands and cut throat-competition are a reality. These forces are incompatible with a system in which enforcement of the status quo is the key objective.
Hierarchy is one such system, and it constrains an organisation’s response to its internal and external environment. The essay will focus on how hierarchy makes organisations uncompetitive in the wake of the modern business environment. It will look at factors that mediate poor results and the consequences of those factors.
The irrelevance of hierarchy in organisations of today
Hierarchical organisations presuppose that an individual has absolute authority. However, the logic of such an assumption is questionable in modern organisations. Companies today have complex ownership systems that make absolute authority impractical. For instance, one may have two or more partners to consider in decision-making.
Partnership structures are especially common in the legal professions, where several individuals have to share authority. Alternatively, an organisation may be publically traded. This implies that hundreds of shareholders could be regarded as the owners of the organisation. Therefore, power must be distributed in these institutions. Absolute authority simply has no place in contemporary businesses because even owners must share power.
The modern business environment is becoming highly competitive. Therefore, successful firms must deliver results; businesses that hold workers accountability are the ones that deliver results. For this to happen, companies need to distribute authority on the basis of task accountability rather than arbitrary hierarchic levels.
This means that workers need to have substantial control over the way they meet organisational objectives. Hierarchy breeds an atmosphere of departmental thinking. Sometimes divisions could develop rivalries that are detrimental to the achievement of organisational objectives.
They would use their hierarchical levels to benefit themselves rather than the organisation. In essence, hierarchies create defensive attitudes that destroy the overall well being of organisations (Hales 2002).
Market demands are changing at lightning speed today. As a result, companies ought to respond to the consumers’ needs quickly. If an organisation possesses a deeply hierarchical system, chances are that it will take too long to communicate these varying market patterns to other members of the organisation.
By the time information gets to top management, it may be too late to act. Competitors without tall structures are better-suited to a fast-changing consumer market.
In line with the above argument is the resistance to long-term change and innovation. Modern companies become leaders among their peers through constant innovation and change. At a theoretical level, hierarchy entrenches standards and the status quo. In practice, it is increasingly difficult to have a culture of frequent change and innovation if a hierarchical structure is a key trait of the organisation.
Bureaucracies often strive to deal with short term problems. They try to eliminate disruptions as much as possible, and management processes mostly focus on efficiency (McSweeney 2006). Contemporary firms do not have the luxury of maintaining the status quo.
Businesses like General Motors, Apple, Amazon, and Zara are at the top of their industries because they have entrenched a culture of innovation. Hierarchical firms do not harness new opportunities when they come along because their core goal is to optimise processes.
One should note that change is not completely impossible in the hierarchical firm. In fact, statistics indicate that short term changes are quite common in these firms. The major challenge is accommodating long term change.
If an organisation plans on altering its product portfolio or redesigning the firm’s strategic model, then chances are that flat structures will provide a favourable environment for the change. Little evidence exists on the ability of hierarchical institutions to allow and facilitate these large-scale changes.
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Centralisation has an adverse effect on performance. Experiments covered by Anderson & Brown (2010) indicated that groups in which tasks were simple seemed to perform better in hierarchic systems than flat ones. However, those groups where tasks were more complex seemed to work better in flat structures as their performance was quite impressive.
They had greater control over decisions and reported fewer errors. 100% of them reported fewer errors, and their solutions came at a 60% faster rate than their decentralised counterparts. It should be noted that the author was talking about experiments in which participants worked in groups. Their interactions mirrored that of real organisations.
Nonetheless, other experiments on the effect of hierarchy on performance have demonstrated a positive correlation. However, these studies can be countered on the basis of their research designs. Most of them claimed to simulate hierarchic systems, but they asked the supervisors to encourage participation and keep their opinions to themselves. Clearly, one can question the veracity of such an experiment.
Nonetheless, one can still learn a lot from the above experiments, because if tasks are complex, then flat structures work best. The question one must ask is whether organisations of today have straightforward or complex tasks. In comparison to firms that existed a century ago, there is no doubt that companies have evolved.
They are developing fast and efficient ways of producing. Businesses need to consider a myriad of factors before they complete tasks. As a consequence, most of them would be supported by flat structures in order to increase performance.
In non simulated, field environments, studies show that organisations tend to yield better results when they have less hierarchy. Ouchi (2006) looked at school districts in which less hierarchy prevailed and compared them with bureaucratic school districts. He found that the former had better test results. This emanated from the fact that school principals had power to alter test scores.
Poor performance in hierarchical firms emanates from pay differentials. CEOs of tall organisations are more likely to exhibit pay differentials between themselves and their employees than those without a hierarchical system. In an attempt to enforce hierarchical systems, organisations often pay senior members of the hierarchy more money than lower level employees.
This disparity creates a negative effect on the entire organisation as low-level employees, who are the majority, develop resentment. Carpenter and Sanders (2002) found that firms where pay differentials were minimal, and in line with their input, had greater returns on assets than their counterparts.
If payment were irrelevant to one’s rank and more in line with the complexity of an individual’s task, then chances are that employees will have a positive attitude to the company. Hierarchy undermines this effect by showing that some employees are more valuable than others, regardless of their current input. Absence of hierarchy leads to better performance and even more importantly a greater level of loyalty to the organisation.
In terms of employees’ attitudes, research also demonstrates that hierarchy is becoming increasingly irrelevant in most organisations. If an organisation is steep, its employees’ attitudes are likely to be negative. Members’ satisfaction decreases by high percentages when a person changes a corporation from an egalitarian to a centralised one.
This comes about due to perceptions that individuals have concerning their self esteem, in relation to the organisation. People tend to be frustrated when they feel that their input does not merit as much weight as other colleagues’ input. The question one must ask is whether employee attitudes are relevant to contemporary businesses. Numerous human resource exist on the relevance of employee attitude in organisations.
Researchers found that workers exhibit lower degrees of employee turnover if they have a positive attitude towards their organisations. In this era of high employee turnover, in many retail industries, it is essential to adopt a structure that fosters positive employee attitudes. Therefore, the relevance of hierarchy in this matter is quite questionable.
Ranks and other differentiations that are common to hierarchic systems have an adverse effect on workers’ motivation. A person occupying a lower rank in the hierarchy will be unmotivated because of three key reasons. First, they will think that their position gives them little to contribute. This causes them to become more passive and eventually less effective.
Additionally, their perception of members in the hierarchy increases dramatically. The thought process causes them to infer decisions and actions upon highly-ranked employees in the same manner that children differ contributions to their parents.
Locke and Anderson (2010) proved this assertion when they analysed persons in lower ranks in a number of institutions, he found that many of them will do less discussion and decision making in the presence of their superiors. They explained that their behaviour emanated from their impression of their superiors as more intelligent and more competent than they were.
Additionally, low-ranking employees may feel like their presence in a group predisposes them to unequal treatment. Most times, these problems stem from a low ratio of reward to contribution. High-ranking members often take credit for employees’ contributions, and this causes them to lose motivation. Modern organisations are in a place where workers are increasingly aware of their rights and entitlements.
They will look for other alternatives if they lack motivation from their workplaces. Consequently, those firms that insist on using hierarchy today will find that their employees are unmotivated and will look for opportunities elsewhere.
Some factors moderate the effect of hierarchy in modern organisations. One of them is in the former sections; that is, task complexity. A second aspect in the same is the selection of the right leaders. Studies indicate that if leadership selection occurs properly, then hierarchy becomes a workable tool in an organisation. For people to select the right leaders, then they must do so in an unbiased and democratic way.
However, many organisations appear to lack the capacity to select the right leaders because they pay attention to other details that have little bearing on democracy. Hierarchic systems tend to refrain from the use of democracy because members assume that leaders at the top know what is best for the firm.
In this regard, their leadership selection is likely to go wrong, which brings about negative outcomes. Such findings prove that modern organisations must rethink their dependence on hierarchy.
Corrupting consequences of power are also another moderator of hierarchy. In hierarchic systems, organisations place people in different ranks, which can corrupt their decision-making, behaviour and their thought processes. A lot of power gives people access to rewards like physical comforts, pay perks and non monetary rewards like praise, attention and esteem.
It should be noted that not all people that access power demonstrate harmful behaviour, but the possibility is quite clear. Galinsky et. al. (2006) proved this when they conducted an analysis of power positions. They concluded that power causes people to pay minimal attention to others, and this leads to a disregard of their input. Keltner et. al. (2003) found that people became more objectifying in positions of power.
They also lack social awareness about norm-violating behaviour. Some of them may consider others as a means to an end. They often think about their subordinates as tools that can be manipulated for their own good. Power, as concentrated in centralised systems, alters leader’s decision-making abilities. It leads many of them to disregard the effect of risk on the decision processes.
In the past, where organisations had monopolistic control over markets, businesses could afford the luxury of skewed decision making, poor perception of risk, and norm violating behaviour. However, in today’s hyper competitive and connected world, these attributes could become catastrophic to an organisation. Since hierarchy is the source of these corruptive effects, then its necessity should be rethought.
Hierarchy is irrelevant in modern organisations. Not only does it stifle horizontal and vertical communication, but it makes business environments hostile to change. The phenomenon does not hold members accountable for their tasks; it instead focuses on arbitrary ranks. In today’s fast paced- world, this makes hierarchy irrelevant. Additionally, hierarchy reduces employee motivation and attitude.
These are invaluable traits in organisations of today, which suffer from high employee turnover. Perhaps most importantly, hierarchy is irrelevant today because it reduces performance, especially in complex tasks. Companies that want to stay ahead of the competition must heighten performance; therefore, hierarchy is unnecessary.
Anderson, C & Brown, C 2010, ‘The functions and dysfunctions of hierarchy’, Research in Organisational behaviour, vol. 2 no. 27, pp. 35.
Carpenter, M & Sanders, G 2002, ‘Top management team compensation: the missing link between CEO pay and firm performance?’, Strategic Management Journal, vol. 23 no. 4, pp. 367-375.
Galinsky, A, Magee, J, Inesi, E, Gruenfeld, H 2006, ‘Power and perspectives not taken’, Psychological Science, vol. 17 no. 13, pp. 1068-1074.
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