Organizational Structure part 2

Vertical Organization

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A second aspect in the vertical organization refers to the number of levels in an organizations hierarchy. Tall hierarchy organization with many layers of management Flat hierarchy organization with few layers of management

Most firms start out small, often with only one or at most two layers in the hierarchy. As they grow however, managers find that there is a limit to the amount of information that they can process and the control they can exert over daily operations.

To avoid being stretched too thin and losing control, they tend to add layers to the management hierarchy, hiring more managers and delegating some decision making authority to them. In other words, as an organization gets large, it tends to become taller.

In addition, as an organization grow, they often start to undertake more activities like expanding product lines, diversifying into similar activities or expanding into new regional or national markets. This too creates problems of coordination and control, and once again solved by adding layers to the management hierarchy.

Growth in the number of layers in a hierarchy is driven by the sixe of an organization and the number of different activities it undertakes. Adding more levels in the hierarchy is a response to the problems of control that mount when a manager has too much work.

The number of layers added to the hierarchy is partly determined by the span of control managers can effectively handle.

Span of control refers to the number of direct reports a manage has. The optimal span of control is only about six subordinates. A manager responsible for more than six subordinates would soon lose track of what was going on.

But the number of direct reports a manger can handle depends upon the nature of work being supervised, how visible the performance of subordinates is, and the extent of decentralization within the organization.

Generally, if the work being performed by subordinate is routine, and their performance is visible and easy to measure, and if the subordinates ar empowered to make decisions by themselves, managers can operate in a wide span of control.

In summary, as an organization grow and undertake more activities, the management hierarchy tens to become taller.

Problems in Tall hierarchies

Several problems can occur in tall hierarchies that may result in lower organizational efficiency and effectiveness.

Problems in Tall hierarchies

1. Tendency for information to get accidentally distorted as it passes through layers of hierarchy. By the time message has been transmitted by a number of people, it becomes distorted and the meaning starts to change.

Problems in Tall hierarchies

In a management context, if crucial information has to pass through many layers I a tall hierarchy before it reaches decision makers, it may get distorted in the process. So decisions maybe based on inaccurate information, and poor performance may result.

Problems in Tall hierarchies

Problem of deliberate distortion by middle level managers who are trying to get favors with their superior or pursue some agenda of their own. Example is the manager of a division might suppress bad information and exaggerate good information in an attempt to window dress the performance of his unit to higher management and win their approval.
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The more layers there are in a hierarchy, the more opportunities there are for people to deliberately distort information. If information is distorted, senior managers will make decisions on basis of inaccurate information, which result in poor performance and low productivity.

Another problem with tall hierarchies are that they are expensive. The salaries and benefits of multiple layers of midlevel managers can add up to significant overhead and cost structure of the firm.
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