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In this segment we're going to look at the second dimension of management,
which is about how do we make decisions.
So, if the previous segments were all about managing across, in other words how
do we coordinate activities, this is about managing down, managing the vertical.
How do we make decisions?
How do we make effective decisions?
Now, what are the basic principles of operating here?
Well the left-hand principle,
the traditional principle, is that old favorite, hierarchy.
0:37
Now, many people mix up hierarchy and bureaucracy as terms.
And indeed, if you're going to be absolutely technically precise about this.
Hierarchy is sometimes seen as an element of bureaucracy.
But for the point, point of view of, of, of this course, I'm making a distinction
between managing a cross coordination and managing down decision making.
So in the world of managing down, how do we make decisions?
1:03
We can make them through the hierarchy.
That's the established way of doing it.
What do we mean by hierarchy?
In this context, we mean something very specific.
We mean the legitimate authority that one person has
over another in an organization context.
So, hierarchy says that your boss has the right to tell you what to do.
And if you think about it, as soon as you get outside of the work context,
if your boss tells you to go and get him a beer, then perhaps that's not appropriate.
But in the, in the work context is it's entirely accepted that the principle of
hierarchy allows people above to tell people below what to do.
So, that's what it means.
And it refers to essentially acceptance, if you like, that the person at the top is
both, shall we say, higher than the person below in terms of some sort of formal.
position, but also that they typically know more or
certainly have more breadth of knowledge, and typically that they have some sort of
1:59
better understanding of what needs to be done.
And so this notion of hierarchy, of course,
is kind of baked into pretty much any organization structure we can think of.
And that is essentially the starting point.
Hierarchy has many benefits.
First of all, it provides structure for large organizations.
In fact, you know, there's a lot of talk about non-hierarchical organizations,
there's a notion of flat organizations.
But actually, that's a bit of nonsense.
The fact is that any large organization actually needs some level of hierarchy
in order to survive.
In fact you think of the, the world of open source software development, such as,
Linux, which were created as entirely flat structures.
Over the years they actually created.
Not because they wanted to be, because they had to.
They had created hierarchies in order to essentially create some sort of
order and structure.
So, we need structure for big organizations.
That's what hierarchy provides.
It also provides.
Rapid decision making, you know, you think about the old military logic.
If we wanted to make a decision, and we wanted to get everybody to follow that
decision quickly, actually hierarchy provides the best means of
disseminating a decision quickly through thousands of people.
And finally, hierarchy also ensures what you
might call alignment between power and accountability.
They often say that for
example journalists have power but no accountability.
[LAUGH] Well, in the world of organizations, power and
accountability, become aligned through the hierarchy.
The person at the top has power, has legitimate power over the people below,
but he or she is also accountable for that power.
If they get it wrong, they're the person who loses their job.
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So that's the benefits of hierarchy.
And as I said, I am not going to be rude about the term of hierarchy,
because it turns out that we really do need hierarchy.
Yes, many organizations have too much hierarchy.
Yes, it is the case, I think that hierarchy has had a bad name
sometimes over the years, but we mustn't lose sight of its enormous benefits.
4:01
What are the costs of hierarchy?
What are the weaknesses of hierarchy?
Well, many of you experience this on a daily basis, but
let me just highlight four of them.
First of all, we assume that the boss knows best.
And of course sometimes the boss does know best,
sometimes the boss does not know best.
And it's very often the case,
particularly in a fast moving business context the person on
the front line actually understands what has to be done better than the boss.
So one of the weaknesses is,
is, is a boss always assuming that they actually have the right to,
to overrule, when in fact the smart decision might lie on the frontline.
Secondly, information often does not throw, flow freely enough between layers.
Whilst we can be very efficient at disseminating a decision through our
hierarchy, the reality is that the quality of communication in
many organizations is a little bit less than it should be.
And as a result over many, many layers of an organization, a particular story and
a particular piece of information will,
will get attenuated, will actually get lost.
The third point kind of relates to the second point, which is that
many managers actually fail to, shall we say, add value to their subordinates.
Some managers think their job is just about providing information flow.
Well, of course, nothing could be further from the truth,
because in today's world as technology allows us to
share information much rapidly and, and, and without regard to hierarchy,
quite clearly the manager cannot expect to simply be a conduit for information.
So managers do not add enough value.
That's one of the reasons, in fact,
why we should be flattening organizations to get fewer layers of hierarchy.
Not zero hierarchy, but fewer layers of hierarchy.
And then the final point I would make in terms of the weaknesses of hierarchy is
that, of course, it makes employees at the lower level feel a little bit disengaged.
Now we made the same point.
If you think about it, back around the story about bureaucracy.
Bureaucracy and hierarchy are actually kind of related in that respect, because
both of those systems end up, shall we say, substituting individual freedom and
right to make decisions for rule and systems that are governed from above.
So those are the four clear weakness to hierarchy.
In the next segment we are going to
talk a little bit about the alternative to hierarchy, which is collective wisdom.
Julian BirkinshawProfessor of Strategy & Entrepreneurship
