Hierarchical Structure: Definition and Examples

By Indeed Editorial Team

Updated August 5, 2022 | Published February 4, 2020

Updated August 5, 2022

Published February 4, 2020

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A team meets in an office meeting room. A writing board is seen to the left of them, and the team sits at a large table in front of a wall of windows.

If you're a new business owner, it's important to consider how you'd like to structure your organization going forward. One way is by implementing a hierarchical structure. Though this type of pyramid-like organization is the most common among businesses today, it's important to know how such a structure would work within your own business.

In this article, we'll define hierarchical structure and take a look at its main advantages and some of its disadvantages.

What is hierarchical structure?

A hierarchical structure refers to a company's chain of command, typically from senior management and executives to general employees. In other words, this structure applies to organizations with a sole leader and a flow of subordinates underneath them.

For example, let's say a company has 10 employees. The employees are then divided into groups and each group reports to their manager. Their manager then reports to the chief executive officer. Therefore, the company has multiple levels, with the highest level holding the highest power.

Hierarchical structures are typically represented in a pyramid shape. Keep in mind, it's important to evaluate the pros and cons as well as your company's needs in order to make the most beneficial decision for your organization.

Related: How To Become a Manager

Advantages of hierarchical structure

Utilizing a hierarchical structure can prove to have many benefits for your company. Here are some of them:

1. Clearly defined career path and promotion path

When your organization has a hierarchical structure, your employees are more easily able to ascertain the various chains of command. This allows them to know how they can advance within the company over time.

Those with more experience will have a better chance of obtaining these advanced positions. The opportunity for promotion can be appealing to employees and because of this, they'll likely have higher morale, be motivated to perform better and in turn, increase your company's productivity.

Related: What Is a Career Trajectory? (and How To Create One)

2. Department loyalty

Companies with hierarchical structures are divided into various departments and teams. When employees are part of a team, they grow a sense of team spirit and loyalty. This can be beneficial for your company to ensure everyone works toward the same goal. Teamwork and department loyalty, in general, can have a profound effect on your company's success.

Related: Talent Relationship Management: Definition, Importance and Benefits

3. Levels of control

Having a hierarchical structure helps employees understand the various levels of leadership. This is because management roles are more clearly defined in this type of pyramid structure. In having various levels of control, operations run more smoothly.

For example, if you have a large company, you'd likely want to implement this type of structure to avoid chaos and confusion. A clear-cut chain of command leads to more organization and structure within a company. In addition, this helps with an organization's communication, as well.

Related: What Is a Chain of Command? (Definition and Explanation)

4. Clearly defined authority

Companies with a hierarchical structure have different levels of authority and power. This means employees will have direct supervisors they can report to. This eases the flow of communication and ensures employees know from whom their direction and working orders are coming.

Rather than having a company with a sole executive leader, a hierarchical structure allows for better employee management and clearly defined executive positions.

Related: Manager vs. Supervisor: What's the Difference?

5. Encourages specialization

Having a hierarchical structure and therefore, various departments, allows employees the opportunity to become specialized in a particular field. For example, a newspaper company could separate employees by news reporters, sports reporters and designers.

In this case, news reporters would specialize in general and breaking news, sports reporters can specialize in sportswriting and designers can hone in on their artistic abilities.

Related: How To Ask for a Promotion

Disadvantages of hierarchical structure

Although there are many benefits to implementing a hierarchical structure, using this type of organizational technique can also have drawbacks. Here are some disadvantages to having a hierarchical structure:

1. It can be costly

Having a hierarchy means multiple departments which means having a multitude of managers and supervisors. The larger the number of senior management roles, the more you'll be paying your employees in yearly salary. This is because advanced roles typically yield higher wages.

Employees in these positions tend to have a higher level of education, more knowledge and more experience, therefore, requiring a commensurate salary. In other words, a large corporate overhead could end up being costly to your business.

Related: What Is a Salary Range and How Do Employers Use It?

2. Slow action and decision-making

With so many leadership roles in a hierarchical structure, the speed of decision-making can end up slowing down. This is because all manager roles tend to be involved in many company-wide decisions. The greater the number of management roles, the harder it will be to get everyone in one room let alone, have them all on board with a sole decision.

Because of the diverse personalities in a workplace, it is common for leaders to have differences of opinion as well as different ideas for the company. In contrast, a company with a sole executive would only need that executive's decision to make something happen.

Related: 12 Ways To Make Better Decisions

3. Poor communication

Dividing employees into different departments and levels can lead to a lack of communication. This is because there are so many supervisors you'll need to get in contact with rather than one sole executive.

Because everyone is broken up into various departments, they might not feel the need to communicate with others outside of their own team. In addition, different supervisors run their departments differently.

This means they'll likely have their own set of rules and procedures for how things operate within their team. If one employee were to switch departments or collaborate with another team, the different sets of rules could create confusion.

Related: What Are Organizational Silos? (Pros and Cons)

4. Department rivalry

A company utilizing a hierarchical structure would mean various employees are divided into teams, groups or departments with particular specialties. These various departments could end up making decisions that only benefit themselves rather than the company as a whole.

In addition, they could feel a sense of rivalry with another department because they were broken up to work independently of one another. This rivalry could hurt overall company morale and result in a more hospitable working environment.

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