What is a Business Hierarchy?

Definition: A hierarchy is a vertical organizational set-up where higher levels impose a degree of authority over the lower levels. In other words, it is a pyramidal scheme used to arrange the different authority levels within a group of individuals.

What Does Hierarchy Mean in Business?

Organizational hierarchies exist since the beginning of mankind itself. The purpose of these set-ups is to organize the work flow in a way that everybody has someone to answer to for whatever they are doing. These hierarchical systems follow a top-bottom approach, where the higher levels of the vertical link have greater authority, influence and decision-making power over the lower ranks.

Payments or benefits are also increased as the individual moves up the “ladder”, to compensate for the new responsibilities and challenges being taken. These hierarchies exist in business environments and in the societies as well. On the business field, hierarchies are needed for things to work properly. The supervising role of the higher levels guarantees, under normal circumstances, that the job is being done. The way the lower level ranks relate to the upper ones is called chain of command.

Commands are given from top to bottom and there’s a chain effect where the next level delegates activities to a lower one in a descendent order and then the result is taken up to the level that demanded the task in the first place.

Example

A company called Dallas Chicken Co. distributes ready-to-eat chicken products to stores within the city of Dallas. The company is currently being restructured because it was taken over by a new owner and the new Chief Executive Officer has to organize the company in a way that everybody has someone to answer to. In order to do this, he hired a business consultant to help him and the company hierarchy was designed as the following: the pyramid will be divided in 5 different levels, the first level being the CEO level.

Next we have a Top Executive level where all the C-class executives are and after that there’s a Senior Management level, for Department heads, like the Marketing or Financial Manager. The 4th level is for supervisors and the last level is for analyst and operators. This hierarchy will ensure that the company’s workflow is properly distributed and supervised.