Decoding Hierarchies in Business: When is Having a Boss a Benefit for an Organization?

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Most companies around the world have a leader, whether that title is a President, CEO, or Founder. There’s almost always someone at the very top of a corporate food chain, and from that position down, the company is structured hierarchically, with multiple levels of leadership supervising other employees.

It’s a structure with which most people in the working world are familiar, and it dates back as long as one can remember. The word itself—leader—dates back to as far as the 12th Century and is derived from the Old English word “laedere,” or one who leads. But in 2001, a group of software engineers developed the Agile Workflow Methodology, a project development process that puts a priority on egalitarian teamwork and individual independence in searching for solutions.

A number of businesses are trying to embrace a flatter internal structure, like the agile workflow. But is it necessarily the best way to develop business processes? That’s the question posed by researchers, including Goizueta Business School’s Özgecan Koçak, associate professor of organization and management, and fellow researchers Daniel A. Levinthal and Phanish Puranam in their recently published paper on organizational hierarchies.

“Realistically, we don’t see a lot of non-hierarchical organizations,” says Koçak. “But there is actually a big push to have less hierarchy in organizations.”

"Part of it is due to the demotivating effects of working in authoritarian workplaces. People don’t necessarily like to have a boss. We place value in being more egalitarian, more participatory."

Özgecan Koçak, Associate Professor of Organization & Management

“So there is some push to try and design organizations with flatter hierarchies. That is specifically so in the context of knowledge-based work, and especially in the context of discovery and search.”

Decoding Organizational Dynamics

While the idea of an egalitarian workplace is attractive to many people, Koçak and her colleagues wanted to know if, or when, hierarchies were actually beneficial to the health of organizations. They developed a computational agent-based model, or simulation, to explore the relationships between structures of influence and organizational adaptation. The groups in the simulation mimicked real business team structures and consisted of two types of teams. In the first type, one agent had influence over the beliefs of rest of the team. For the second type, no one individual had any influence over the beliefs of the team. The hierarchical team vs. the flat structured team.

“When you do simulations, you want to make sure that your findings are robust to those kinds of things like the scale of the group, or the how fast the agents are learning and so forth,” says Koçak.

"What’s innovative about this particular simulation is that all the agents are learning from their environment. They are learning through trial and error. They are trying out different alternatives and finding out their value."

Özgecan Koçak

Koçak is very clear that the hierarchies in the simulation are not exactly like hierarchies in a business organization. Every agent was purposefully made to be the same without any difference in wisdom or knowledge. “It’s really nothing like the kinds of hierarchies you would see in organizations where there is somebody who has a corner office, or somebody who is has a management title, or somebody’s making more than the others. In the simulation, it’s nothing to do with those distributional aspects or control, and nobody has the ability to control what others do in (the simulation). All control comes through influence of beliefs.”

Speed vs. Optimal Solutions

What they found in the simulation was that while both teams solved the same problems presented to them, they achieved different results at different speeds.

"We find that hierarchical teams don’t necessarily find the best solution, but they find the good enough solution in the shorter term. So if you are looking at the really long term, crowds do better. The crowds where individuals are all learning separately, they find the best solution in the long run, even though they are not learning from each other."

Özgecan Koçak

For example, teams of scientists looking for cures or innovative treatments for diseases work best with a flat structure. Each individual works on their own timeline, with their own search methodologies. The team only comes together for status updates or to discuss their projects without necessarily getting influence or direction from colleagues. The long-term success of the result is more important in some cases than the speed at which they arrive to their conclusion.

That won’t work for an organization that answers to a board of directors or shareholders. Such parties want to see rapid results that will quickly impact the bottom line of the company. This is why the agile methodology is not beneficial to large-scale corporations. Koçak says, “When you try to think about an entire organization, not just teams, it gets more complicated. If you have many people in an organization, you can’t have everybody just be on the same team. And then you have to worry about how to coordinate the efforts of multiple teams.

"That’s the big question for scaling up agile. We know that the agile methodology works pretty well at the team level. However, when firms try to scale it up applied to the entire organization, then you have more coordination problems."

Özgecan Koçak

Özgecan Koçak (pronounced as ohz-gay-john ko-chuck) is associate professor of Organization & Management at Emory University’s Goizueta Business School.

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