Business Dictionary defines Hierarchical Organization as a "common, pyramid-like organization where one person is in charge of a functional area (engineering, finance, marketing) with one or more subordinates handling the sub-functions. In an hierarchical organization (whether business, military, political, or religious) higher levels imply greater superiority and domination than the lower ones, and the chain of command extends straight from the top to the bottom.
Hierarchical Organizational Structures
- In a functional structure, functions (accounting, marketing, HR etc) are quite separate; each led by a senior executive who reports to the CEO. The advantage can be efficiency and economies of scale where functional skills are paramount. The main disadvantage is that functional goals can end up overshadowing the overall goals of the organization.
- In a divisional structure, the company is organized by office or customer location. Each division is autonomous and has a divisional manager who reports to the company CEO. Each business unit is typically structured along functional lines. The advantage here relates to local results, as each division is free to concentrate on its own performance. The disadvantage is that functions and effort may be duplicated. For example, each division may have a separate marketing function, and so risk being inefficient in its marketing efforts.