Although the traditional corporate hierarchy may have had its place at the head of the table for several decades as the go-to organizational structure, it doesn’t work for every business.

Business leaders are now more tuned in than ever before to the crucial role that organizational structure plays in the long-term success of their businesses. They are paying much closer attention to, and spending much more time weighing up, different organizational structures before making a final decision on which to use.

As a result, we are seeing a steadily increasing number of organizations turn their backs to the traditional corporate hierarchy, for all its faults, and instead opt for structures that are more modern and agile.


What is the ‘Corporate Hierarchy’?

A corporate hierarchy, sometimes referred to as a “chain of command”, is an organizational system where instructions are passed down the chain from one person to another—i.e., from the top (executive and managerial levels) to bottom (supervisors and core staff).

A corporate hierarchy tells employees in no uncertain terms who they should report to and when they should consult their supervisor or another manager for things like making decisions concerning projects and passing on information.


How Does a Corporate Hierarchy Work?

In a traditional corporate hierarchy, a single person sits at the top. This is usually a chair Chief Executive Officer (CEO) who is responsible, overall, for the organization.

Immediately below this person, you will typically find other executives, such as a Chief Financial Officer (CFO) or a Chief Operating Officer (COO). This of course depends on the size of the organization.

Moving further down the hierarchy, you will usually find regional managers, heads of department, and mid-level managers. Below these people will be lower-level managers such as team leaders and supervisors who are responsible for a team of “regular” employees.

As you move down each level of the corporate hierarchy, autonomy and decision-making power are reduced. This top-heavy method for organizing power and decision making assumes that each level of the organization is subordinate to the one above it, and that’s the level to which it reports. Executives will report to the CEO while supervisors will report to department heads, for example.


Disadvantages of a Corporate Hierarchy

While there are many advantages to a chain of command-style corporate hierarchy, there are several disadvantages also. And it is these disadvantages and drawbacks that are prompting today’s modern and agile organizations to carefully consider whether adopting the old-fashioned corporate hierarchy model is the right move for them. Here are five to consider:


1. Slow Communication & Decision Making

Inherent in the traditional corporate hierarchy is a need for everything to be approved and OK’d at every level as it passes up and down the chain. This can cause unneeded delays and confusion.

For example, a regular employee may pass his expenses sheet to their supervisor, who then passes it to their line manager for initial approval. This line manager may not get around to seeing this expenses sheet for several days. When they do, they will likely need to kick it further up the chain or to another department for final approval. If there is an error, however, it will likely need to be passed back down the chain so it can be fixed by the employee before being passed back up the chain, again to the line manager who will send it on to its final destination.

This is just one example of how something as simple as an expenses claim, piece of information, or another directive can lead to unnecessary delays, and it applies to every part of the business where somebody in the chain of command needs to give their blessing for something to go ahead.


2. Reduced Autonomy

In a rigid corporate hierarchy, those who deal directly with customers and clients may have the least authority to solve problems when they arise. A customer support agent is unlikely to be able to greenlight a refund or discount without it being approved by somebody higher up the chain of command.

This is because the rules of a corporate hierarchy dictate that only higher-ups can approve decisions, and this can mean that regular employees at the bottom of the chain might not be able to respond quickly to customer or other point-in-time needs.


3. Inhibited Collaboration

A major disadvantage of the corporate hierarchy is that it doesn’t encourage employees to collaborate and share information outside of their departments and immediate reporting structure.

This means that employees in one department are less likely to seek and welcome input from another, especially if any requests must first be sent up the corporate chain via departmental management.

It is for these reasons that many criticize the corporate hierarchy for being an inflexible silo that pushes people to form cliques and compete with one another for power and control. Managers may also become territorial about their own departments which adds to the competitive nature.


4. Less Innovation

Rigid reporting structures and defined channels of communication are a huge barrier to innovation. This is because employees need flexibility and a certain degree of autonomy to share their ideas with you and collaborate with their colleagues.

Given that your regular employees are the people who are in direct contact with your customers and clients, they are the people best placed to come up with new ideas and it’s in your and the organization’s best interest to encourage them to do so.  

By opting for a more flexible structure to the traditional corporate hierarchy, or by “loosening” up the corporate hierarchy by allowing teams to self-govern, you provide more ways for employees to experiment with new ideas.


5. Concentrated Power

A corporate hierarchy can create a noticeable distance between the leaders at the top and the regular employees at the bottom who make things happen.

While this can work in larger organizations, it can be problematic in smaller ones, such as start-up environments, where close involvement and teamwork between managers and employees is needed.