Is the era of Hierarchical Management over?

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Is the era of Hierarchical Management over?

Companies are adopting disruptive ideas and are more open towards experimentation rather than planning.


--BY SAURAV POUDYAL

An organisation in itself is a structure formed to achieve a specific task. In every organisation there are various units that work together to achieve this task. The structure that defines the roles and responsibilities of these different units within the organisation to achieve the organisational goal is the organisational structure.

Whenever we think about an organisation, the first structure that comes to mind is a top down or a vertical structure headed by the top management followed by arrows and boxes trickling down to lower level staff. This structure is a classic example of a hierarchical organisational structure. Almost all organisations operate in this structure. A group of staff forms a unit and is headed by a unit head or a supervisor or a manager. This head in turn reports to a mid-level manager who has this one or more other units reporting to him/her and so on and so forth, finally forming an outline of a hierarchical management structure. This structure has been in existence for decades and is traditionally deemed as the only effective organisational structure to run any business. But is that the only possible structure to succeed in today’s fast-moving business world fuelled by digitization and innovations?

Many alternate structures have been discussed as alternates to the traditional hierarchical structure. Among them, the networked structure model has been widely debated. A network structure is flatter as compared to a hierarchical structure and does not have a formal structure linked with reporting lines. In a hierarchical structure, units are formed for specific jobs comprising of experts in that particular field. Flow of communication is on a need to know basis and only information that is deemed appropriate for that unit is shared. Accordingly, as per the given skill set of a specific unit, it is expected that the unit will perform the end to end tasks to give a desired result. However, not all tasks can be completed by a specific unit and there are dependencies with other units with specific skill sets to achieve the end result.

If we take an example of a FMCG company, the core responsibility of a unit involved in distribution of the end products is to manage proper distribution of the products in a desired market. However, determining a target market or identifying a concentration of the desired client set is dependent on market analytics and MIS. This responsibility lies with a separate unit handling MIS and analytics as their core responsibility. Thus, the information flow about market analytics is not necessarily shared with the distribution unit and in turn there is a dependency for the distribution unit on analytics and MIS to complete their task.  

Network Structure
A network structure is a flexible structure without a rigid organisational structure. The structure in a network can change shape depending upon task to task as every task has its own specific requirements and a different skill set required to complete. In the above example, a distribution unit in a traditional hierarchical structure will have dependency on another unit, say analytics and MIS as considered above. The information flow is limited and the unit has to depend to some extent upon another unit to actually complete the task assigned to it. In a network based structure, for a specific task, the unit will not only comprise of a distribution unit but have a collaborative network relationship with all concerned units and all these units work as a single unit to complete the task. There are open pathways for any individual or a unit with a specific skill set to contribute to the desired result.

Networking provides real time solutions to problems as compared to hierarchical structures as all concerned teams, units or individuals are interconnected and well informed about a task. Hence, without intervention or supervision, once a problem is ascertained, the unit or individual with the required skill set to trouble shoot the issue can directly contribute. This way a significant amount of resources is saved in terms of time, effort and even money. Hence, where a traditional hierarchical structure is rigid in its form, a network structure adapts a softer structure thereby involving networks, groups, units or communities instead of rigid reporting lines.

The hierarchical structure came into being decades ago where automation and digitization were in their infancy or even nonexistent. In the absence of these factors, the hierarchical structure evolved as the most effective and efficient way of managing any business. In today’s context when the entire world is being considered as a global village due to the advancement in technology and communication, the flow of information has a wide reach. As opposed to a constrained flow of information in the case of a hierarchical structure, there is a free flow of information in a networked structure. 

Whether manufacturing, trading, or service, network based structures can provide a better solution to all these industries. Organisations need not stick to their traditional approaches and rigid standards given the available options that technology can provide which can be more efficient economically and qualitatively. Hence, at its core, a network structure is beneficial to both small and large firms.

If we consider the above example of a manufacturing firm, regardless of its size, efficiency comes with a simpler and flatter structure. A smaller firm can outsource some of its operations like distribution and manufacturing and focus on their core strength which can be designing, relationship building or any other USPs in terms of quality or service to clients. 

Similarly, for a larger firm which might have its own strength in terms of end to end product cycle, starting from raw materials acquiring, manufacturing and to distribution of finished products, adopting a network based structure will be helpful in substantially cutting down the turnaround time in the entire cycle with the relevant units working as a single collaborative structure. Thus, the decision making becomes a process with all the units involved taking the ownership which will be more balanced and apt. 

The decision-making process does not depend upon a single person or a management team to provide a solution which they think is the best. As in reality the best solution might actually come from the approach of collaborative responsibility vested upon all concerned units involved in the end to end process.

Disruptive Ideas
Today, companies are moving from profit centric to a more purpose focussed approach. The concept of empowering is being widely debated instead of controlling. With the free flow of information and advancement in technology, transparency is becoming more relevant than ever. Companies are adopting disruptive ideas and are more open towards experimentation rather than planning.

With the advancement in technology and some disruptive innovations like the blockchain coming into the picture, business solutions are entering a new era of technological advancement. In a recent trade transaction between Reliance Industries India and its US counterpart, blockchain technology was used which was a first of its kind in international trade. Blockchain solutions is a distributed database that maintains the record of orders called “blocks” in real time and all the stakeholders involved in the end to end process have a real time visibility on the progress. It is said that using the blockchain technology the transaction which would have ideally taken 10 days or more could be concluded in less than a day. We are not too far away from this technology being adapted widely by many businesses and it will have a significant impact in the ways businesses operate.

With such disruptive ideas making their way into businesses, the controlling nature of a hierarchical structure will need to evolve too. Hierarchical management may not be completely discounted immediately as a networked organisation might not be independent to a hierarchical structure but a conceptual shift can define a more efficient structure. Traditionally, disruptive ideas are not accepted immediately and take time to make an impact, it should be noted that this process is a part of evolution. A hub within an organisation comprising of a management team whose core responsibility would be co-ordination with different partners and units within the network rather than controlling them will pave the way for an efficient and networked structure. With this adaptation businesses can stand out in all fronts from manufacturing to client service. Today, the business world is not about mere competition but it is a race to standout and be efficient in doing business. Consumer behaviours are shifting at a rapid pace. The way businesses used to run yesterday is no more relevant today and similarly the approach adopted today might not be relevant tomorrow. It all boils down to efficiency of running businesses and efficiency comes from within the structure of the organisation. 

The author is the Head of Bancassurance at Standard Chartered Bank Nepal Limited. The views presented in the article are of the writer himself and do not represent the organisation that he is associated with.

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