Guide

Business organisational structure

Hierarchical organisational structure

Organisational structures define a hierarchy within an organisation. The two most common arrangements include:

  • a flat organisational structure
  • a hierarchical organisational structure

Each structure has its advantages and disadvantages. The most appropriate arrangement will depend on the size and the type of your business, and the number of management levels that you need. See reasons for changing your organisational structure.

How does a hierarchical organisational structure work?

Hierarchical structure is typical for larger businesses and organisations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organisation.

The decision-making process is typically formal and flows from the top down. This creates a tall organisational structure where each level of management has clear lines of responsibility and control. As the organisation grows, the number of levels increases and the structure grows taller.

Often, the number of managers in each level gives the organisation the resemblance of a pyramid. This structure gets wider as you move down - usually with one chief executive at the top, followed by senior management, middle managers and finally workers. Employees' roles are clearly defined within the organisation, as is the nature of their relationship with other employees.

What are the advantages of a hierarchical structure?

A hierarchical structure can provide beneficial to businesses. For example, it can help establish:

  • clear lines of authority and reporting within the business
  • clearer understanding of employee roles and responsibilities
  • accountability for actions or decisions at different management levels
  • clear career paths and development prospects which can motivate employees
  • opportunities for employees to specialise and develop expertise in their field
  • close supervision of employees through narrow span of managerial control
  • a culture of loyalty towards teams, departments and organisation as a whole

What are the disadvantages of a hierarchical organisational structure?

Workplace hierarchies are not always effective. Common disadvantages of hierarchical structures include:

  • complicated chains of command which can slow down decision-making
  • inconsistencies in management at different levels which can impede work
  • delays in communicating vertically through the levels and horizontally between teams
  • less flexibility to adapt and react to environmental and market pressures
  • disconnect of employees from top-level management
  • lack of autonomy can cause strain on employee manager relationship
  • difficulties collaborating outside of the team 'silo' or dealing with team rivalry
  • considerable amount of corporate overhead to support the many management layers

Generally, tall organisations are very complex. Strategies should be in place to deal with the challenges that are likely to occur under this structure. This could include creating a decentralised organisational structure - one in which senior management assigns the authority for limited decision-making to lower levels in the organisation.

For some businesses, a tall organisational structure will not be appropriate at all. Find out more about the flat organisational structure.

If you decide to change your organisational structure, make sure that you manage the process correctly. See best practices in change management.