Hierarchical Organization Structures

Hierarchical Organization Structures

Hierarchical structure is typical for larger businesses and organizations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organization. The decision-making process is typically formal and flows from the top down.

Hierarchical structure is typical for larger businesses and organizations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organization. The decision-making process is typically formal and flows from the top down. This creates a tall organizational structure where each level of management has clear lines of responsibility and control. As the organization grows, the number of levels increases and the structure grows taller.

Often, the number of managers in each level gives the organization the resemblance of a pyramid. This structure gets wider as you move down - usually with one chief executive at the top, followed by senior management, middle managers and finally workers. Employees' roles are clearly defined within the organization, as is the nature of their relationship with other employees.

Two popular types of hierarchical organizational designs are Functional Structures and Divisional Structures.

1. Functional Structure

In a Functional Structure, functions (accounting, marketing, H.R., and so on) are separate, each led by a senior executive who reports to the CEO. This can be a very efficient way of working, allowing for economies of scale as specialists work for the whole organization. There should be clear lines of communication and accountability. However, there's a danger that functional goals can end up overshadowing the overall aims of the organization. And there may be little scope for creative interplay between people in different teams.

2. Divisional Structure

In a Divisional Structure, the company is organized by office or customer location. Each division is autonomous and has a manager who reports to the CEO. A key advantage is that each division is free to concentrate on its own performance, and its people can build up strong local links. However, there may be some duplication of duties. People may also feel disconnected from the company as a whole, and enjoy fewer opportunities to gain training across the business.

The Simple/Flat Structure is common in small businesses. It may have only two or three levels, and people tend to work as a large team, with everyone reporting to one person. It can be a very efficient way of working, with clear responsibilities – as well as a useful level of flexibility.

A potential disadvantage, however, is that this structure can hold back progress when the company grows to a point where the founder or CEO can no longer make all the decisions.

Related Links

Creation Date Thursday, 29 December 2022 Hits 1010

You May Also Like

  • General Ledger Overview

    General Ledger Overview

    What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.

  • Matrix Organizational Structures

    Matrix Organizational Structures

    In recent times the two types of organization structures which have evolved are the matrix organization and the network organization. Rigid departmentalization is being complemented by the use of teams that cross over traditional departmental lines.

  • GL - Understanding Chart of Accounts

    GL - Understanding Chart of Accounts

    A chart of accounts (COA) is a list of the accounts used by a business entity to record and categorize financial transactions. COA has transitioned from the legacy accounts, capturing just the natural account, to modern-day multidimensional COA structures capturing all accounting dimensions pertaining to underlying data enabling a granular level of reporting. Learn more about the role of COA in modern accounting systems.

  • GL - Review & Approve Journals

    GL - Review & Approve Journals

    Review and Approval mechanisms ensure that the accounting transaction is reasonable, necessary, and comply with applicable policies. Understand why we need review and approval processes, what are they, and how they are performed in automated general ledger systems. Learn the benefits of having journal approval mechanisms in place.

  • Trial Balance in General Ledger

    Trial Balance in General Ledger

    One of the greatest benefits of using a double-entry accounting system is the capability to generate a trial balance. What do we mean by trial balance? As the name suggests a trial balance is a report that must have its debits equals to credits. Understand the importance of trial balance and why it is balanced. Learn how it is prepared and in which format.

  • What are Management Entities?

    What are Management Entities?

    In this article we will discuss various types of "Management Entities". Various types of operational units, are created by management, to effectively run, manage and control their business. Different types of functional units, and divisional units, are widely used across industry.

  • What is a General Ledger?

    What is a General Ledger?

    The purpose of the general ledger is to sort transaction information into meaningful categories and charts of accounts. The general ledger sorts information from the general journal and converts them into account balances and this process converts data into information, necessary to prepare financial statements. This article explains what a general ledger is and some of its major functionalities.

  • The Subsidiary Ledgers

    The Subsidiary Ledgers

    For any company that has a large number of transactions, putting all the details in the general ledger is not feasible. Hence it needs to be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. Understand the concept of the subsidiary ledgers and control accounts. 

  • Record to Report Process

    Record to Report Process

    Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts. 

  • Defining Organizational Hierarchies

    Defining Organizational Hierarchies

    A hierarchy is an ordered series of related objects. You can relate hierarchy with “pyramid” - where each step of the pyramid is subordinate to the one above it.  One can use drill up or down to perform multi-dimensional analysis with a hierarchy. Multi-dimensional analysis uses dimension objects organized in a meaningful order and allows users to observe data from various viewpoints.

Explore Our Free Training Articles or
Sign Up to Start With Our eLearning Courses

Subscribe to Our Newsletter


© 2023 TechnoFunc, All Rights Reserved