The German corporate landscape is currently in a stirred mood: Suddenly, new competitors are appearing everywhere, attacking the business of established companies – for example with new digital platforms. This is causing uncertainty, but there is a consensus on the appropriate response to the new threats: Adaptation and innovation capability appear to be the most important prerequisites for successfully meeting the challenges of the globalized and digitized business world. This is not just a question of incremental change; what is required is the ability to make disruptive – i.e. fundamental – changes, for example in the form of entirely new products or completely new business models. The motto is not merely adaptation, but upheaval, which enables the conquest of new markets and thus the survival of change.
Organizations are good at routines, not innovations
In the debate about what the right corporate structure is for this purpose, one clear favorite has long since emerged – despite all the differences about the design in detail: self-organization. Classical hierarchy, on the other hand, is generally considered to be one of the losers, as it is not believed to have the capacity for disruption. This is based on the assumption that established organizational models with their hierarchical structures and bureaucratic processes primarily serve stable markets with stable competitive relationships.
Flat hierarchies and self-organized work, on the other hand, are identified as decisive success factors for the ability to work innovatively and to bring about fundamental change. One objection to this is that it is sometimes precisely the hierarchy that makes fundamental change possible. And that organizations which get rid of their hierarchy, at least formally in part or in full, may even lose the ability to bring about fundamental change.
Organizations that get rid of all or part of their hierarchy, at least formally, lose the ability to bring about fundamental change.
As is so often the case, the organizational world is not as black and white as decision-makers would like when it comes to hierarchy. Hierarchy is often associated with rigid, bureaucratic structures that swallow up every ounce of creativity. Power games that torpedo what is supposed to be the actual goal – the joint success of the company – also inevitably come to mind for many.
But it is not quite that simple. It is true that an excess of formal regulation can result in paralyzing processes in which – just for the sake of bureaucracy – endless loops are dragged out until a decision is reached. But even newcomers to an organization should always quickly realize that even the tightest formalization leaves room for maneuver that is creatively filled by employees on a daily basis. And often to the benefit of the organization.
The end of hierarchy does not mean the end of power games
And even power games, which – especially when viewed from the outside – appear as sand in the gears of organizational rationality, by no means result exclusively from the superordination and subordination of positions. Rather, the division of labor in itself challenges the use of power at the interfaces between functional units. Simply because employees are divided into different communities of interest. Abandoning hierarchy is therefore no cure for the use of power. On the contrary, it ultimately robs the organization of its influence over the distribution of potential resources of influence.
Being a boss does not automatically mean being powerful. However, appointing superiors who have decision-making authority by virtue of their structure at least allows the organization to increase the probability of their assertion in certain situations. This is an essential factor with regard to disruptive, i.e. fundamental, change. After all, democratic decision-making processes with equal rights, away from classic hierarchies, may initially seem desirable. However, the absence of formal hierarchies also places decision-making in organizations under new constraints – which may conflict with the need to respond flexibly to changing market conditions or the implementation of fundamentally new developments and ways of working.
With hierarchy, even unpopular decisions can be enforced
Supervisors, by virtue of their hierarchical position, are not formally dependent on the approval of employees. This makes it possible for them to dispense with personal respect and sympathy in the decision-making process. Among equals, on the other hand, decision-making is more strongly tied to the interests of those involved, because in case of doubt they can play the infamous veto card or drag out the process through constant objections.
As early as the 1960s, the sociologist Niklas Luhmann saw an important function of hierarchy in the possibility of not taking internal interests into account: It enables managers to orient their decision-making more strongly to the needs of adapting to environmental expectations – instead of primarily orienting themselves to the interests within the organization. This means that the ability to make environmentally sensitive decisions is – contrary to currently popular assumptions – ensured precisely by the hierarchy.
Freedom of choice ends where that of others begins
Hierarchical decision-making also has the potential to respond particularly quickly to changes. Certainly, complex formal procedures may stand in the way of decision-making speed, but this does not apply to the hierarchy itself. On the contrary, the lack of need for lateral coordination and collegial reassurance makes it possible – metaphorically speaking – to shoot decisions from the hip. Now, one could counter that modern, post-bureaucratic organizational designs often grant employees a high degree of decision-making freedom.
And, yes, it’s true: There is no doubt that this gives employees increased opportunities to make decisions quickly within their sphere of influence and responsibility. However, the scope of this freedom to make decisions usually comes up against the limits of how much others are affected – the leeway is thus often very small-scale and only has an effect in a narrowly defined organizational area. Above all, hierarchy always serves to achieve integration through centralization. As a result, decisions are binding across the board, even beyond individual parts of the organization.
If, on the other hand, hierarchies are flattened and a greater emphasis is placed on decentralized decision-making contexts, decision-makers simply lack the mandate to call for overarching processes of change. The lack of authority to issue directives must then be compensated for by new coordination processes that tend to be more costly and protracted – such as consensus-building processes.
At its core, hierarchy has great disruptive potential
None of this is intended as a plea for heroic visionaries who should realign their organizations despite all resistance from their employees. However, it is worth expressing doubts as to whether the idea that the dismantling of hierarchy is quasi-automatically associated with the development of the ability to change is not on the wrong track.
In fact, hierarchy sometimes has a disruptive core – precisely because, despite its image as the guardian of the status quo, it has the potential to make environmentally sensitive but at the same time quick and far-reaching binding decisions.
