Decision Making: How much does Hierarchy Matter ?

In the contemporary business world, many companies have layers and layers of hierarchy where decisions are made at the top and passed down to the rank and file employees. This gives rise to organizational structures that are vertically deep and horizontally broad with spans of control extending to several layers in both ways. It is a moot point as to whether decisions made at the top are actualized fully considering the several layers that they have to pass by the time they reach the bottom. Of course, this depends on the kind of organization since bureaucratic structures often have tendencies of the decisions being not implemented due to vested interests and the inertia. The latter is especially important as many bureaucracies desist from implementing decisions because of lethargy owing to the nature of the organizational setup.

In practice, many organizations ensure that certain autonomy is given to the employees in the middle layers as well as those slightly senior so that decision making need not be centralized. This helps the organizations to democratize the decision making process wherein the autonomy enjoyed by the middle managers and the rank and file employees ensures their wholehearted participation in the implementation of the decisions.

Indeed, this often leads to situations where decisions are taken at the level of the middle and lower management concerning the day to day running of their teams which means that broad level decision making concerning organizational policies and strategies are done at the top.

The concept of profit centres or cost centres is especially useful to consider in cases where decision making is decentralized. For example, companies like Citigroup have divided their operations into regions and divisions according to functional areas where decisions made at each region level are taken on the basis of the profit earned by them relative to the costs incurred in running them. Since the regional heads and the heads of the divisions are responsible for the profits made or losses incurred, they take the decisions in a manner that benefits their regions or divisions. Indeed, this is a very effective way of ensuring that the right decisions are taken which not only benefit the region or the division but the entire organization as well.

In recent years, there has emerged the process of having divisional heads run their divisions like companies wherein they are responsible for all the activities of their divisions and only the decisions pertaining to very high level strategies are made from the headquarters. This is the case with large and mega corporations like Unilever and Proctor & Gamble where decisions are taken at the top that pertain to broad directions that the companies want to follow and most decision making is decentralized. This goes down the line as well with each country, state and group level centres taking decisions that affect their day to day affairs in accordance with their local conditions.

The point here is that decision making must benefit the rank and file employees as well as the top management and hence unidirectional decision making does not bode well for the organization. In conclusion, decision making has to be according to the needs of the situation and must balance the competing interests for the same resource and must be based on taking everyone on board. Only then would the decisions be truly democratic.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.