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Hierarchy Culture: An Informative Guide...

Hierarchy Culture: An Informative Guide for HR

Written by Gem Siocon

7 minutes read

Hierarchy has been how societies have been structured throughout the history of humankind. It has translated to the business context as well. The hierarchy culture within organizations strives for clarity and efficiency through a structure resembling a pyramid.

What is a hierarchy culture in a business context, and how can HR promote its elements within an organization?

Let’s dive in.

Contents
What is hierarchy culture?
Key characteristics of hierarchy culture
Examples of hierarchy culture
Advantages of hierarchy culture
Disadvantages of hierarchy culture
What HR can do to promote elements of hierarchy culture

What is hierarchy culture?

The hierarchy corporate culture is characterized by structure, set procedures, and levels of authority. Employees know their place in the chain of command – who’s accountable to them, who they report to, and what the rules are.

Companies in the financial, healthcare, and oil and gas industries often follow the hierarchical culture to manage risk, be more stable, and operate more efficiently.

Hierarchy is one of the four types of organizational culture defined in the Competing Values Framework. The framework establishes these culture types:

Adhocracy culture – Create/Do things first
Clan culture – Collaborate/Do things together
Hierarchy culture – Control/Do things right
Market culture – Compete/Do things fast

It’s common for most organizations to comprise more than one type of culture, but usually, there is a dominant culture in the company.

You need to choose and build the type of organizational structure that matches your business and goals. While a cultural transformation is a challenging change process, it will ultimately lead to boosting your organizational performance and company profitability.

Key characteristics of hierarchy culture

Formal structure with clear levels of authority and top-down control – The design of hierarchical organizations starts with the CEO at the top, then middle management, then team leaders directing team members. The upper management determines all business decisions. From middle management to entry-level staff, everyone must carry out responsibilities that help meet those decisions.

Practicing this approach that measures employees’ performance by job status and hierarchy, leaders feel that the more experienced staff members are trustworthy and are more likely to make the right decisions.

Established processes that enable smooth functioning – Management roles are more clear-cut, so this helps employees understand the different levels of leadership. The hierarchical design is suitable for large businesses. A well-defined chain of command can help avoid confusion and lead to more coordination.

Rules, policies, and defined roles that govern people’s work – Rules are strictly implemented so employees understand their responsibilities and are accountable for their actions at different management levels.

Companies with hierarchical cultures stick to traditions and rules to avoid risks, prevent errors and manage failures. Usually, companies in high-risk industries, like oil and gas, healthcare, and government institutions, benefit from this type of corporate culture.

Compliance with best practices and business processes is vital to a company’s success and productivity.

Stability: Clear directions, goals, and expectations from the authorities – In hierarchical organizations, stability and control are essential. For instance, managers instruct employees on their daily tasks and establish clear expectations.

Organizational values are consistently observed, establishing a code of conduct and setting expectations for every employee.

Examples of hierarchy culture

Military

In the military, the hierarchy and chain of command are evident. People work within a specific rank, and each position reports to the one above it. Roles and promotion opportunities are clearly defined.

Large financial institutions (like Wells Fargo and Goldman Sachs)

Like the military, financial institutions like investment banks operate in a strict and rigid hierarchy. Each rank is crucial and carries individual responsibilities.

According to Andrew Guttmann, author of “How to Be an Investment Banker: Recruiting, Interviewing, and Landing the Job,” rank in banks is a different social status between job titles.

In the US investment banking hierarchy, for example, entry-level is the analyst position, followed by an associate, VP, senior VP finally Managing Director as the highest position.

Political systems

Political systems ensure everyone understands their positions so they can perform their duties. However, bureaucracy and red tape complicate decision-making, which might result in delayed actions.

Churches

The monarch occupies the top spot in the Anglican church, followed by the archbishop, bishop, deaneries, and vicars. Each role holds specific responsibilities within set boundaries.

These individuals may grow in their duties by gaining new experiences from studies and training.

Advantages of hierarchy culture

Stable work environment	Many people do well in an environment where they know exactly what to expect and what to do. People who thrive on routine will find authoritative work attractive. They know when they’re supposed to clock in at work, work on their duties, clock out, and be done. They also value security because they know what is expected of them.
A clear chain of command	Decision-making is smooth because people know who is responsible for what and decides what to do. Because the chain of command is emphasized, employees know where they stand, whom to report to, and who reports to them. Having clarity of one’s responsibilities leads to job satisfaction when employees feel a sense of ownership over their careers. It also makes work processes more efficient, which hugely contributes to business growth.
Well-defined career and promotion paths	In a hierarchy culture, employees can literally “climb the corporate ladder” and are motivated to prove themselves to get a promotion. Because career progression is valued, people are pushed to improve and learn new skills. They gain relevant training and accept more responsibilities to get promoted. With promotion comes advancement in status and benefits, a great motivator for employees.
Job security	Having clear responsibilities and routine work, employees tend to stay loyal to the companies they work for. They feel secure because they are paid as long as they fulfill their duties.

Disadvantages of hierarchy culture

Inflexibility	With a rigid culture and bureaucracy, it’s not easy to respond to changes quickly. There might be a delay in adapting to new market decisions, industry trends, or technological advances. This is a challenge, especially during the pandemic, inflation, and the Great Resignation. The slow movement from the upper management can be frustrating to some employees or even customers. This inflexibility can negatively impact workforce productivity, motivation, and performance.
Creating organizational silos	The formalized structure might contribute to a lack of collaboration across various departments. In today’s business environment, where teamwork is highly prized, hierarchical companies may achieve less because they act a little slower. Teams work independently, hence missing out on the benefits of collaborative work, like higher employee engagement and retention. Team rivalry may also arise because teams operate individually. The higher stakes for each promotion, the tighter the competition. As such, departmental goals may overpower the company vision.
Lack of innovation and groupthink	A rigid chain of command can demotivate people to present their ideas and just agree to whatever the leadership offers. A company culture that is tightly controlled by the higher-ups may discourage entry-level staff from voicing fresh ideas, which can hamper innovation. A lack of innovation leads to companies losing their competitive edge.

What HR can do to promote elements of hierarchy culture

If executed properly, organizations with clear-cut processes, levels of authority, and career paths for employees become well-oiled machines that are set up for success. How can you as the HR department promote aspects of the hierarchy culture within your business?

1. Help employees chart their career paths

Your employees need to have something to work towards. A lack of career growth and professional development is one of the top reasons why people leave companies.

Suppose you show your employees how they can progress within the organization and what they need to do to get there, like mentorships and training programs. In that case, you’re increasing your chances of retaining them while future-proofing your organization by developing the skills you’ll need.

2. Create and share organizational charts

Having updated organizational charts that employees can access helps them understand the organization’s roles, responsibilities, and chain of command. That leads to smoother collaboration.

You also need to ensure that your chain of command and business processes are complete, with no gaps or inconsistencies.

Similarly, every department must have clear goals, as reviewed and approved by the C-suite.

3. Empower managers to set expectations

Effective managers set expectations so their team members know what they are working towards. Managers must articulate the objectives and the results, so employees understand what they need to do.

For this reason, it’s essential to create shared goals and milestones to track progress. That way, your employees are made aware and accountable for their actions.

4. Fine-tune your compensation strategy

In companies with a hierarchy culture, the compensation strategy is predictable, consistent, and has a long-term focus.

For example, there are minor salary differences among good performers. Those with a lower performance rating have a much lower salary increase. And star employees either get a promotion or a massive pay hike.

There are clear rules and principles for how the organization calculates and awards salary increases. You can differentiate some rewards and compensation based on employee level (employees, managers, senior managers, etc.).

A final word

Hierarchy culture aims to avoid ambiguity and create rules and norms based on the structure to encourage order, efficiency, and consistency. While this type of structure is often seen as rigid and outdated, many organizations benefit from a clear division of responsibilities and established processes to carry out the work in an efficient way.

When you understand what type of organizational culture best supports your business goals, you can create strategies to steer the culture that way.

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