Hierarchy Is Good, Except When It’s Not

The accountability and information-sharing created by hierarchy is beneficial, but not if status ranks executives as more important and underlings as less valuable

By the Eli Broad College of Business at Michigan State University

Hierarchy isn’t bad, per se. It’s all in what you do with it.

Decisions made at the top are fine, even desirable. But only if people at all levels are respected for their contributions, allowing ideas to rise and fall based on merit.

“Hierarchy has a bad name among organizational leaders right now. You hear a lot about flattening hierarchies and getting rid of hierarchies and layers of management. Some of that is based on the idea that hierarchies are bad for the culture and squash creativity,” said Nicholas Hays, an assistant professor in the Department of Management at Michigan State University’s Eli Broad College of Business.

“The ideal environment would be a hierarchy to help coordinate efforts but without a boss that assumes ‘you’re my subordinate so therefore, you’re less important.’”

Hierarchy can be functional because it provides accountability. “If you lose the hierarchy, you lose the accountability. You lose the coordination. The challenge is to keep the hierarchy without the natural tendency – when you have rank differences – for people at the top to take a very egocentric view of themselves,” Hays said.

A lot of the work Hays does at the Broad College of Business looks at differences in power versus differences in status. “A lot of people use those terms interchangeably, but power is about having authority to make decisions about things like resources and budgets and to evaluate others, whereas status is about being respected and admired by others; do they look up to you, do they come to you for advice?” he said. “I have a lot of work showing the toxic effect of status differences. When some people are looked up to more than others, it breeds a lot of competitive behavior, including withholding information that I have rather than sharing it with the team or keeping tangible resources for myself.”

“What we’re finding is that power differences on their own – having a boss who is in charge and gets to make decisions – can be good for team performance, specifically because they lead to more information-sharing among team members. This is why organizations often use teams in the first place: Different people have different perspectives and backgrounds, but leaders are assuming team members are going to share and combine those differing perspectives,” he said.

“However, when power differences are combined with differences in the respect – people at higher ranks receive more respect than people at lower ranks – this discourages people from sharing information and makes them more self-oriented in general. They sit on the information they have, and ultimately, the team performance suffers,” Hays said.

“Leaders should constantly reinforce the message that everyone is important and contributing value by being present, listening to people, and showing genuine appreciation for their contributions.”

So obvious to realize, so difficult to implement

Hays acknowledges that such sentiments can appear to be obvious. “But if it’s so obvious, then why doesn’t it happen all the time? The idea makes so much sense, but the execution is difficult,” he said. “Unfortunately, when people rise up through the ranks, there is a natural tendency for people to hold more egocentric views, meaning they overestimate their own value and underestimate the value and contributions of others. This often leads to these status differences and a lot of resentment from people lower in the organization,” Hays remarked.

People may also underestimate the tangible value of mutual respect. “People think the idea of mutual respect sounds very touchy-feely and that maybe it improves job satisfaction. But at the end of the day, they have shareholders who care more about dollars and cents. What one particular group experiment found is that it wasn’t just job satisfaction: it actually led to tangible performance. The groups where there were authority differences but everyone was viewed as respected equally shared more information and, as a result, actually performed better. They made better decisions because everyone was sharing the information and perspectives they had. In organizations, you could easily imagine that a department that makes better decisions is producing more shareholder value. It’s not just warm and fuzzy; it’s also dollars and cents.”

“You want to keep the actual structure, the organization chart, where one person is the boss and gets to make decisions, but try to reinforce the culture of mutual respect, so even though one may have greater authority than the other, everyone acknowledges that they all play equally important roles in making a business work. The ideal environment would be a hierarchy to help coordinate efforts but without a boss that assumes ‘you’re my subordinate, so therefore, you’re less important.’”

“If you say one thing, then do another, the action means more than the words.”

For such initiatives to work, leaders must lead by example. “If you say one thing, then do another, the action means more than the words. If you train people to view everyone as equally important, but then you go to your office on the 50th floor and don’t interact with your subordinates, that doesn’t exactly comport with what was conveyed in the training,” Hays said. “Leaders should constantly reinforce the message that everyone is important and contributing value by being present, listening to people, and showing genuine appreciation for their contributions.”

The Eli Broad College of Business at Michigan State University develops leaders who solve the world’s business problems. We offer a comprehensive portfolio of talent development options, including Executive Development programs, Executive MBA, Full-Time MBA, and master’s of science degrees in accounting; business analytics; finance; healthcare management; management, strategy, and leadership; management studies; marketing research; and supply chain management. Learn more about how we can help develop your leaders at broad.msu.edu/clo.