22.09.2025Away with Hierarchy? Why Leadership Matters

Only hierarchies enable controllability and efficiency through central coordination. Text: Dr Thomas Maran, Prof. Marjaana Gunkel

Do we still need hierarchies? In times of agile teams, new work and self-organisation, classic hierarchies seem to have gone out of fashion. But anyone who believes that companies can function without clear hierarchies is mistaken. This article shows why hierarchies are not an outdated model, but a proven response to the growing complexity of modern companies. However, it also shows when flat structures can still be useful.

Are hierarchies in companies a thing of the past? At first glance, organisations such as Morning Star, Spotify and Liip seem to prove that hierarchies are superfluous. Morning Star, a leading industrial tomato processing company, largely dispenses with formal hierarchy and requires its employees to engage in focused self-management. Spotify, the Swedish streaming service, relies on a flat structure with flexible groups – tribes, squads and guilds. And web app developer Liip uses holocracy, a radically flat, self-organised form of organisation. These success stories tempt us to jump to conclusions: if they can do it, then anyone can. But be careful: these companies operate in specific industries with highly specialised employees and unique business models. They are the exception, not the rule.

But where does this call for less hierarchy come from? Less hierarchy means more freedom for employees at the forefront of organisations. If we look at the three most important trends that have been setting the tone in many industries for decades, we can see several arguments in favour of less hierarchy. First, we have evolved into a service-based society. Over the last 50 years, the Italian economy has shifted significantly from the industrial to the service sector. Industry's share of GDP fell to around 24%, while the service sector grew to around 74%, resulting in a structural change. This trend is also reflected in the number of employees per sector. Many services work better when employees have more freedom to act flexibly where they provide them.

Secondly, there is increasing specialisation among the workforce. Italy is seeing a clear shift towards more specialised professions, both in terms of education and job profiles. Specialised workers have expertise that they can only contribute if they are given sufficient freedom in the work process.

Finally, the pace of technological innovation is accelerating. Innovation cycles are becoming shorter and shorter. As a result, companies are confronted with a constant stream of new innovations, large and small, across all areas of their value chain, and their market position can be threatened at any time by disruptive innovations from competitors. To be innovative themselves, employees need the freedom to experiment with new solutions.

These trends are accompanied by changes in global conditions, which are described by the acronym BANI. The BANI world describes a world that is increasingly characterised by fragility (Brittle), anxiety (Anxious), non-linearity (Non-linear) and incomprehensibility (Incomprehensible). In short, we are confronted with greater uncertainty and complexity. Both prevent long-term top-down planning.

At first glance, these trends seem to point towards greater empowerment of employees through less hierarchy. So are companies with flat hierarchies or even no hierarchies at all the one-size-fits-all solution for the new economy? We say no, and take a closer look at the added value that functioning hierarchies can bring to this new economy.

Hierarchy refers to a structured ranking system in which the roles of the members of a group are superior or subordinate. This ranking system determines who can give instructions to whom, who has decision-making responsibility and who distributes information and resources within a group. But why do such hierarchies exist?

Hierarchies are the solution to an age-old problem: coordination. They are evolution's answer to the challenge of coordinating as a group in order to achieve common goals. All species in nature that live in groups naturally form social hierarchies. Anyone who believes that hierarchies are a relic or an invention of large companies has failed to understand how people work together in groups. Without a clear hierarchy, there is no leadership, and without leadership, there is no freedom, only conflict, stagnation and waste. Therefore, anyone who completely abolishes hierarchies is giving up one of the most effective tools for collective action in groups.

Hierarchies solve coordination problems not only in simple groups, but also in companies. The units of our company are like the limbs of a body. They determine what our company is capable of and the scope of its actions. But just as the body can only achieve speed, precision and strength through the well-functioning interaction of control and execution, so too can a company only achieve targeted action through central coordination (see Figure a.).

Let us first look at corporate management. Hierarchies reflect functional differentiation, with different levels of a hierarchy performing different tasks: strategic management at the top level, tactical management for specific geographical, functional or product areas at the middle level, and operational implementation at the front line. The hierarchy of a company is therefore also a reflection of the company's hierarchy of objectives: long-term, strategic objectives at the top, medium-term objectives in the middle, and short-term, operational objectives at the bottom. By keeping an eye on the objectives of their own level and those of the subordinate level, managers in a hierarchy can avoid conflicts of interest between the units. Only through this hierarchy can our company remain controllable and pursue a targeted strategy in the market across all its units.

This functional differentiation through hierarchies has clear advantages: recent studies show that managers at the top of steeper hierarchies develop better strategic visions than those in flatter hierarchies. Hierarchies therefore allow managers to detach themselves from the problems of day-to-day business and instead take a strategic perspective and think more proactively.

Let us now take a look at the execution. By dividing our company's value chain into the necessary sub-steps and assigning them to different units within the company, we create clear responsibilities and scalability. The more divisible the underlying task, the more differentiated our division of labour will be. We then organise resources and specialised personnel along these lines. How well we succeed in this organisational design determines how quickly and effectively we as a company can use our resources and respond to change. However, the activities of individual units in organisations based on the division of labour must be coordinated.

Hierarchies enable this central coordination and integrate the flow of information from previously separate, specialised units. This increases the efficiency of communication and thus the flow of information: instead of all units having to coordinate with each other, each unit reports to only one higher-level role in the hierarchy (see Figure a.). Hierarchies thus also improve the quality of decisions because they maintain an overview of dependencies between units. This prevents individual units from making decisions that would be detrimental to the company as a whole, for example in the distribution of resources or work planning. Without clear coordination of activities, there is a risk of duplication of work, inefficiency and chaos.

In short: a clear yes to hierarchies!

Of course, hierarchies also create problems. Not every good idea that arises from keen observation at the forefront of the hierarchy is heard at the top of the company. Not every strategic initiative at the top of the hierarchy takes into account all the details of the operational reality at the very front of the hierarchy. And the cause of many conflicts in teams is cockfights over status and the next higher place in the hierarchy. So hierarchies also create problems, but we create even more problems without them!

Research on hierarchies in companies confirms this picture: hierarchies strengthen coordination and make organisations more effective and efficient.

Research also confirms some facts that are already well established: pyramid-shaped hierarchies in which individuals make decisions and take on a coordinating role function better than other forms of organisation and better than those in which specialists make decentralised, independent decisions. As the number of employees in companies grows, their hierarchies become steeper, meaning that new levels are inserted into the hierarchy to coordinate multiple units. This is simply because managing directly subordinate employees requires effort. A new hierarchical level with subordinate managers relieves the burden on higher-level managers.

Companies also opt for steeper hierarchies when their value creation is highly complex. The more complex the tasks in a company are, the more activities and decisions depend on each other. These interdependencies increase the coordination effort and the need for communication. The risk of wrong decisions is therefore higher, especially if coordination is not successful. By introducing one or more hierarchical levels, it is possible to better control this interaction by distributing the flood of information and the coordination effort among several managers. Steeper hierarchies therefore cope better with complexity than non-hierarchical forms of organisation and those with flatter hierarchies.

Similarly, companies opt for steeper hierarchies when their value chain includes tasks that are difficult to break down. In this context, lower breakability simply means that the tasks share common resources, use the same technologies or address the same customers. In other words, the tasks are intertwined and cannot be organised strictly according to the division of labour. The more this applies, the closer the units entrusted with these tasks must work together. The need for central coordination is therefore all the greater. We already know the answer to this challenge: we need at least one clear hierarchical level above these tasks. Only a hierarchy ensures that everyone pulls together, that no conflicts of interest arise and that important decisions can be made faster and better.

We stated at the outset that groups form natural hierarchies. Hierarchies in companies and the leadership roles within them, on the other hand, are formally determined. Higher-ranking roles are therefore entrusted with a formal leadership task, rather than leaving it to group dynamics to determine who asserts themselves as an informal leader. Is this a good thing? Research says yes. Formally assigned leadership tasks prevent conflicts in working groups. If we leave it up to the groups themselves to decide who takes the lead, more conflicts arise than if we assign formal leadership roles in hierarchies. In other words, even the formal way in which we often develop hierarchies in companies solves more problems than it creates.

Back to the question of whether hierarchies are becoming obsolete in the new economy. Let's answer the following questions for ourselves: Do we expect the new economy to produce fewer rather than more complex value chains? Do we expect the new economy to require less intertwined activities (e.g. ICT and processes)? Do we expect companies to become smaller rather than larger? No. So why should we expect hierarchies in companies to become flatter rather than steeper?

So are flat hierarchies and trust in the self-organisation of groups just hype? No! On the contrary, they are effective tools for very specific challenges. But we need to know when and how to use them!

Flat hierarchies, such as multidivisional, organic, community-based and platform-based organisations, are real organisational forms that are particularly effective for specific business models in certain industries. They represent alternatives to the classic pyramid-shaped hierarchy, but are not universally applicable solutions, rather exceptions that make sense in certain situations. In short: if flat, then selective, situational and often temporary!

Flat hierarchies within individual parts of the company, empowering employees through delegative leadership or even shared leadership in working groups are proven techniques for decentralising decision-making power and passing it on more to the front line of hierarchies. These techniques are particularly effective when our company operates in dynamic, innovation-driven environments. These are environments where markets, technologies or customer needs are changing rapidly and we need to continuously adapt our strategy or even our entire business model.

In order to make these adjustments and enable genuine innovation, we must allow the units entrusted to us to act outside the logic of our company and the existing business model. It may therefore make sense to remove individual units from our company's hierarchy in order to explore new solutions with flatly organised teams (see Figure b.). Typical areas of responsibility in which less hierarchy works particularly well are those that require creative freedom, such as research and development, service or product innovation.

Flat or non-existent hierarchies are often associated with faster decision-making at the interface with the outside world, higher employee motivation, less bureaucracy and greater innovative strength.

For an organisation with flat hierarchies to function, a certain organisational culture is required. This means a culture that emphasises the importance of transparency, trust, psychological safety and continuous learning. Organisations with this kind of structure are referred to as TEAL organisations, which go beyond traditional hierarchical structures and strive to achieve three core principles: self-management, holism and an evolutionary vision.

However, not all employees want to work in self-managed teams; some employees prefer and demand more leadership. Abolishing hierarchies is therefore not a solution that is suitable for all organisations and employees. It can lead to losses in efficiency, as responsibilities in such a system may not be clearly defined and significantly more communication and coordination between members of the organisation is required (see Figure a.).

To translate the key messages of this article into practical insights for entrepreneurs, we have formulated three questions. Ask yourself these three questions and then decide whether and where you need more or less hierarchy in your company.

• How complex are the areas of responsibility in your value chain? The more complex the business, the more important central coordination through hierarchy becomes. If you find that complexity is high, check whether managers are having difficulty keeping track of these areas of responsibility or coping with the flood of information. An additional level of hierarchy can work wonders here by relieving the burden on managers and thus enabling better decisions in line with your strategy.
• How well can the areas of responsibility in your value chain be separated from one another? The more closely the areas of responsibility are intertwined, for example through shared resources, technologies or customers, the more coordination is needed between units. In such cases, an additional hierarchical level can help. Managers are then better able to avoid duplication of work, defuse conflicting goals and enable coordinated action.
• How dynamic is your market? In volatile markets with rapidly changing customer needs and high pressure to innovate, we must allow some units to experiment flexibly with new solutions. Here, it makes sense to gradually move towards flatter structures or shared leadership so that these units have sufficient autonomy for creative solutions.

So does more hierarchy mean better? No! Excessive hierarchy can stifle the initiative and creativity of your best employees because they have less freedom and their ideas get bogged down in too many rules. This creates the risk of promoting a culture in which no one really feels responsible. A bloated hierarchy also hinders communication between units: employees communicate upwards or downwards instead of horizontally with the people who have the necessary knowledge. Hierarchies are fine, but only as much as necessary.

Let's summarise: hierarchies are not outdated relics; they are the foundation of functioning companies. Hierarchies allow us to centrally coordinate activities within our company. This enables us to strategically manage our company and execute our business model in a more disciplined manner. Those who completely eliminate hierarchies risk processes becoming inefficient, employees losing track of the big picture, and conflicts arising more frequently.

Nevertheless, there are situations in which we should experiment with flatter organisational forms, namely dynamic, innovative environments. But even then, flatness only works if the organisational culture supports such a structure and employees are open to and motivated by self-management. The future does not belong to either/or, but to the wise both/and. Successful companies maintain efficient hierarchies and develop self-managed units where they are useful.

Dr Thomas Maran is a leadership researcher and teaches leadership, entrepreneurship and strategy at the Faculty of Economics at the Free University of Bozen-Bolzano and in the Executive Education programme at the University of Zurich. He previously worked at the Universities of Liechtenstein, Innsbruck and Klagenfurt. His research is published in renowned journals such as The Leadership Quarterly, Technological Forecasting and Social Change and the Journal of Business Research. He also advises companies and public administrations on leadership, strategy and innovation. Website: www.thomasmaran.com

Prof. Marjaana Gunkel was born in Finland. She has held professorships in International Human Resource Management and Management and Organisation at Otto von Guericke University Magdeburg and Leuphana University Lüneburg. Since 2015, she has been Professor of Organisation and Human Resource Management at the Free University of Bozen-Bolzano. She is also Dean of the Faculty of Economics. Marjaana Gunkel's research focuses on international human resource management, in particular on international differences in HR practices and employee behaviour. She has published in leading journals in this field, including the Journal of Applied Psychology, Journal of International Business Studies, Journal of Organisational Behaviour, Journal of World Business, Journal of International Management and International Journal of Human Resource Management.

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