Chapter 3 Simpler Structures

Scope of Chapter 3 Hierarchy Emergence of hierarchy Negative features of hierarchy Moves to reduce hierarchy Delayering Downsizing

Hierarchy Characterized by ‘chain of command’: Clear ladder of authority and responsibility Traditional hierarchy assumes Unity of command Limited supervisory spans (spans of control)

Emergence of Hierarchy increasing size means that control and coordination cannot be maintained on a face-to-face basis within the same group authority and responsibility have to be differentiated vertically the only way to structure unified working systems with hundreds or thousands of employees?

The Basis of Hierarchy Need for vertical specialization because tasks vary in complexity, from the routine to the strategic responsibilities vary from those of limited short-term consequence to those of major long-term consequence

The Contribution of Hierarchy Meets four organizational needs: to provide order for the decision process to identify and nail-down accountability to place people with the necessary competence at each organizational layer to build a basis for the organization that is acceptable and promotes consensus

Authority is Necessary in order to have Accountability Authority is an essential feature of hierarchy. According to Elliott Jaques, managers’ authority must include the following elements: the right to veto the appointment of any applicant who falls below the minimum standards of ability the power to assign work the power to carry out performance appraisals and to make decisions about raises and merit awards the authority to initiate removal, at least from the manager’s own team

The Principle that Authority should Equate to Responsibility authority (power) without responsibility irresponsibility, corruption, arbitrary behavior responsibility without authority inability to obtain resources and to get things done, frustration

Negative Features of Hierarchy While hierarchy contributes to efficient and orderly management, it imposes barriers to adaptability and innovation Tends to support the status quo rather than change and evolution Adds appreciably to managerial overhead costs Creates communication problems and sense of distance between top and bottom of an organization Demotivates junior staff

Moves to Reduce Hierarchy Many organizations are attempting to minimize hierarchy and introduce simpler structures These simpler structures are characterized by Opportunities for bottom-up initiatives More open and wide-ranging communication Greater involvement of all staff Authority often vested in teams Control through targets and internalized norms rather than through managerial supervision

Size and Hierarchy Number of hierarchical levels is linked to an organization’s employment size through limitations on spans of control Hence moves to reduce hierarchy through ‘delayering’ normally require downsizing as well

Size of Organization and Number of Levels Typical figures (pre-1990s): Employees No. of Levels 100 3 500 4 1,000 6 3,000 7 10,000 8

Implications size pushes up the number of hierarchical levels however, rate of increase in hierarchical levels does not match that in numbers employed large organizations do not increase the numbers of managers to compensate for limited number of levels the result is a pyramid-shaped structure

Why Does Size Push Up Hierarchy? The link lies in the span of control: the number of people reporting directly to one manager For an organization of a given size, the higher the average span of control, the fewer the number of levels in the managerial hierarchy There are limits to the number of subordinates a manager can accommodate

The Move Away from Hierarchy Motives: to reduce costs of management to enlist a greater contribution from lower-level employees to cope with increasing complexity, speed, and uncertainty of the business environment to achieve quicker decision-making reflecting a more detailed and timely understanding of local business dynamics hence, attractions of de-layering (and its cousin downsizing)

Breaching of Traditional Assumptions Underlying Hierarchy vesting authority in teams rather than in individuals dismantling rigid boundaries that enabled segregation of authority to a single boss destruction of time and inventory buffers that enabled managers to sift through information carefully and then pass it up the hierarchy for decision

Contingencies for Delayering Can an organization’s size be reduced? - through moving to a network of quasi-autonomous units? - through outsourcing? Can work be restructured to push responsibility down the organization? Can new information technologies assist? Can there be arm’s-length control?

Performance Consequences of Downsizing and Delayering If introduced without careful planning, safeguards for employees, and moves to retain vital staff, downsizing can have major negative effects Delayering also requires training and other support to enable employees to take on additional levels of responsibility