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Rethinking Hierarchy
Nicolai J. Foss and Peter G. Klein

We need to reconceive managerial authority for today’s business

environment — not eliminate it.

to rethink how we wield managerial authority. Meanwhile,

individual views on politics, religion, and culture also
inform our attitudes toward hierarchies — such as whether
we value autonomy or admire authoritarian figures. All of
these factors point to a new, different role for hierarchy to
play in meeting the challenges of the 21st century.

The key challenge for designing and operating hierarchies

today and tomorrow is to balance two opposing forces. The
first is the desire, common to us all, for empowerment and
autonomy, which helps companies mobilize employees’
creativity and exploit their unique knowledge and
capabilities. The other is the need — particularly in
Chris Gash/theispot.com
environments characterized by rapid change and
interdependent activities across the enterprise — to exercise
For all the hype and promise swirling around the idea of
managerial authority on a large scale.
eliminating management to create agile, flat organizations,
bosses and corporate hierarchies have remained extremely Companies need clear, fairly enforced policies and
resilient. As we argued in the pages of MIT Sloan procedures that achieve coordination and cooperation while
Management Review in 2014, under the right conditions, respecting employee desires for empowerment and relative
having such hierarchies in place is the best way to handle the autonomy. Managers have to figure out when to intervene
coordination and cooperation problems that beset human and when to let employees handle problems themselves.
interactions. 1 They allow human intelligence and
creativity to flourish on a larger scale. They provide a larger These are tough issues without easy solutions. Which
structure, with predictability and accountability, for decisions should be decentralized (or delegated)? How much
specialists to do their work. discretion should employees have over the decision areas
delegated to them? How are these employees incentivized
But that doesn’t mean traditional, command-and-control and evaluated? How do executives make sure that all these
organizations are right for today’s environment. We see a decentralized decisions mesh together? A central lesson of
confluence of business and social trends influencing the theories and evidence on organizational structure is that
development of new kinds of hierarchies. Rapid there are no universally “best” answers to these questions,
technological progress, instant communication, value only trade-offs that depend on the contingencies facing the
creation based on knowledge rather than physical resources, company. Identifying and acting on those trade-offs — not
globalization, and a more educated workforce require us decentralizing everything, everywhere — is the key to

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successful leadership. The traditional view of authority (based on the work of

Ronald Coase, Oliver Williamson, and Herbert Simon)
Some proponents of the so-called bossless company pretend assumes that the boss can select the appropriate task, knows
that these trade-offs don’t exist. They hold that only full all the possible ways to perform it, and can observe the
decentralization or delegation — “make everyone a boss” — output, so that rewards and punishments can be
makes companies innovative and adaptable. administered appropriately. In other words, the boss doesn’t
want to perform the task directly (perhaps because she is too
When COVID-19 was declared a pandemic in March 2020
busy with other tasks), but she knows as much about the task
and lockdowns began, few leadership gurus proposed
as the worker does, and she may or may not observe exactly
making everyone a boss to address the challenges that
what the worker is doing as he performs it.
companies suddenly faced. Rather, managers had to figure
out how their companies could survive, which meant In the modern, knowledge-based economy, however, it is
changing their business models, enabling remote work for increasingly unlikely that bosses will know everything their
employees, and adjusting to massive demand shocks and workers know. A tech CEO might be skilled at finance and
supply chain disturbances. Of course, the need for many marketing or good at strategic planning and human relations
companies to shift to a remote work model required that but might not know how to code. A sales manager might
many tasks and decisions be delegated. The point is that understand the product but be unfamiliar with a specific
these changes had to be coordinated, with key decisions sales territory.
made from the top.
In his later work, Simon described a second notion of
To better manage the tension between hierarchical control authority (perhaps reflecting a changing view of what kind
and individual autonomy, we need to rethink managerial of authority is important in more modern conditions): The
authority. role of the boss is to decide what decisions should be
delegated. 3 That is, the boss selects a target outcome,
Rethinking Authority decides which workers are best suited to achieve it, chooses
how much discretion to give to those workers, and steps
There is compelling evidence that many companies are aside. Authority in this sense is not about choosing specific
removing layers of management and that more decisions tasks and making sure those tasks are performed, but about
are being delegated to employees. Organizations are still setting goals, writing job descriptions, selecting people, and
hierarchical, but hierarchy is changing its form. There is also evaluating results. This is our Mark II authority — not
evidence that the exercise of authority is changing. micromanagement, but macromanagement.

Authority has many faces: It may mean the right to hire, fire, Organizational norms currently demand that leaders shift
instruct, supervise, intervene, and sanction. But the exercise toward Mark II authority and away from Mark I, because
of managerial authority is also associated with other most workers don’t want or need a manager telling them
behaviors: leading, creating structures and processes, forging what to do and when to do it. Rather, managers have to
consensus, aligning behavior around shared goals, and design the system in which empowered, autonomous
fostering change. workers can flourish.

We call these two types of authority Mark I and Mark II, Certainly, exercising authority via the choice of delegation
respectively. 2 They roughly correspond to the distinction can add new challenges. Ironically, some workers may prefer
between management and leadership. Clearly, the same less delegation, perhaps because they are risk averse.
manager can exercise both types of authority, but it is crucial Another drawback relates to interdependencies. An
to understand how they differ and when each is most organizational structure with lots of delegation is more
appropriate, because using one when the situation demands complicated than one based on simple command and
the other can be disastrous. control, and managers have to make sure employees are

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exercising the discretion given to them under Mark II it rotates among team members, can be a good way to
authority in ways that are coordinated with each other and maintain this trust. Another good way to foster trust is to
the company’s goals. Moreover, company decision-making have explicit and transparent rules and procedures, which
may be slower under Mark II authority, especially if workers can reassure employees that their authority is real and will
need to discover solutions independently. So while this not be compromised by opportunistic, micromanaging
authority results in a system that is typically more rewarding supervisors.
for workers and more motivating than the traditional form
of authority, it might not be the best choice in all situations. Consider extreme action teams, which are made up of
specialists who perform urgent and interdependent tasks
with highly consequential but often unpredictable outcomes.
How Not to Use Authority Examples of such teams include U.S. Navy SEALs carrying
It is hard to design a hierarchy well, particularly when out special operations or a medical team in a hospital
employees are empowered and the company is delayered. receiving an influx of emergency patients during a natural
Managers are increasingly facing this challenge. disaster. These teams use dynamic delegation, an
organizational structure under which roles and
One of us (Foss) studied the implementation and use of responsibilities are moved around quickly as needed; in this
agile software development practices in a large scenario, employees sometimes find that their decisions are
telecommunication firm, which we will refer to as Company overridden and that responsibility is taken away from
E, across multiple sites over five years. 4 Company E them. 5
adopted the agile methodology as a part of its efforts to
be less bureaucratic and more flat; its goals included being A recent study found that dynamic delegation helps extreme
able to respond more quickly to market needs, reducing action teams perform more reliably while also providing
development time and costs, and supporting organizational training and experience for less experienced members. 6
learning. While the change sped development and cut The broader implication is that this kind of improvisational
software maintenance costs, the emphasis on meeting process works — but only because it happens within an
deadlines hampered learning and innovation: Team established hierarchical structure. Moreover, overruling may
members reported having less time for reflection, bouncing not be perceived as a bad thing when team members think
ideas off each other, and sharing knowledge. And despite that the person doing the overruling actually knows best.
the implicit intention to free employees from bureaucracy, If you are a medical intern treating a patient in critical
the agile method gave project leads the authority to closely condition and the senior physician overrules you, thus
track performance, leaving many team developers feeling saving the patient’s life, then you are probably quite happy to
stifled by an overbearing managerial hierarchy rather than have been overruled.
self-managed.
Despite such cases, there is little doubt that psychological
contracts are often broken by managers engaging in
Enabling Authority unnecessary and intrusive micromanaging and overruling.
Employees may also come to see their position in the
One of the most important ways in which managers exercise
workplace and the resources they can use as entitlements.
authority is in how they delegate it to others. To enable
Organizational changes such as restructurings can thus be
authority in subordinates, managers must first convince
perceived as breaches of the psychological contract, though
them that they really do have autonomy over certain
the manager would not see it that way. Analyzing data from
decisions and actions and earn their trust that authority will
Spanish manufacturing companies, one of us (Foss) found
not be summarily withdrawn. And when managers do, on
that such breaches in fact hurt employee productivity. 7
occasion, need to override an employee’s decision, they need
Morale and creativity decline, and employees start to leave.
to proceed carefully to avoid breaking that trust. Putting
employees in situations where leadership is shared, or where

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The ability to establish, maintain, and signal good or a subunit in a bigger company with just a few employees
psychological contracts will be an increasingly important whose clearly defined roles add up to a coherent whole.
part of the “enabling” exercise of authority. This is one
reason why highly decentralized organizations need a lot of Problems arise when there are conflicts among roles. Who
structure. is going to sing lead? Who gets songwriting credit? The
larger and more complex the organization, the greater the
likelihood of conflict. There are a lot more roles to define
Formalization and and fill. Employees come and go. It’s difficult to figure out
Transparency who is doing what, how well tasks are being performed, and
whether changes need to be made. Full transparency in a
When job descriptions are well understood and distinct, large organization may lead to information overload. This
with little functional overlap, problems coordinating work or is partly why larger organizations are typically divided into
making decisions are less likely to arise between employees. departments, divisions, branches, project teams, or other
But at companies with complex, interdependent processes, subunits, all of which can be managed like smaller units.
where two or more functions might have a stake in a
decision point, it becomes critical to proactively clarify roles, Should the activities of one subunit be transparent to
decision rights, and the organizational priorities underlying another? On the one hand, it might seem better to have
those choices. each group focus on its own tasks and not be distracted by
what’s going on in other units. Let Apple’s iPhone division
For example, at many technology companies, developers’ focus on making great phones without worrying about how
autonomy runs up against the demands of the cybersecurity Apple Music or Apple TV is doing. Let the executive team be
team, which expects to vet any software before it is put into concerned about that. On the other hand, some knowledge
production. In order to keep coordination problems from of the company’s overall strategy and performance is
becoming more poisonous cooperation problems — which necessary for any group to perform well; if Apple is investing
may damage internal relations and be hard to repair — more in content creation and integrating media properties
managers must weigh the need to move quickly and with its hardware devices, the teams making these devices
innovate against the imperative to maintain a certain level of might want to design them differently. Finding just the right
security, and assign decision rights accordingly. level of transparency between units is a key management
challenge.
Many coordination problems are less straightforward than
the example just described, and here the classic management
instrument of clearly defining roles helps avoid turf wars.
Exercising Authority Smartly
Sure, formalized job descriptions can be constraining — and Every business model, strategy, organizational structure, or
can become perceived entitlements that obstruct management style has its strong and weak points. Exercising
organizational change or lead individuals or units to authority smartly means figuring out what decisions to
overstate their right to control particular organizational delegate, who to put in key positions, and when to intervene,
decisions. But these risks can be managed; choosing not as well as deciding whether the system needs to be revised in
to define roles and jobs and formalize processes and response to changing conditions.
procedures is not a good alternative.
The advantages of delegating a decision or an action may
If we all know that Paul sings lead and plays the bass, John outweigh the costs under some contingencies or conditions
sings harmony and plays rhythm guitar, George plays lead but not others. Good managers know this intuitively, but
guitar, and Ringo plays drums, and if all these parts fit that doesn’t make it easy to make the call. Getting delegation
together smoothly, the result is great music. Everyone knows right is a perennial management challenge. Moreover,
his role and how the roles complement one another. Such besides the “hard” aspects of organizational design, like
transparency can work in a small consultancy, a repair shop,

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formal rules, incentives, and monitoring, there are the concentrate and retain control over key decisions.
“softer” parts from psychology and ethics to be considered:
Employees expect rules to be fair, they take pride in being What kkn nowle ledg
dgee iiss n
neeede
dedd, aan
nd w
whic
hich
h em
empplo
loyyees h
haave iit?
t?
empowered, they want their jobs and roles to feel significant, Is the most critical knowledge for a given decision held by
and they are subject to the biases and judgment errors (such senior managers (who know the company’s overall strategy),
as jealousy, overconfidence, and motivated reasoning) to by middle managers (who have a bird’s-eye view of their
which everyone is prone — even managers. Taking all this department or division), or by lower-level employees (who
into account is truly difficult. know their customers best)? Can knowledge at lower levels
of the company be neatly summarized (say, in a customer
Delegation is not simply a matter of empowering workers relationship management database) and made available to
to do their best. Companies like Spotify and Valve, where higher-level managers? What about the reverse? Can
software projects are mostly independent efforts with little strategic priorities be communicated to lower-level
need for coordination between them, can leave team size and employees to explicitly inform certain decisions or actions?
composition, project requirements, and even some budgets It is crucial that managers ask themselves these questions.
up to the teams. Bottom-up organization — not literally
bossless but flat, flexible, and organic — makes sense for At a critical point in Intel’s history, when it transitioned
these companies. But it might not make sense for a large from mainly producing memory chips to mainly producing
manufacturing company that has a portfolio of highly microprocessors, its middle managers had a better grasp of
interdependent products featuring shared designs and the right strategic direction than top managers did. Still,
components and that sells bundles of complementary Intel’s senior managers were often better positioned to grasp
products. For such a company, more centralized control is the key issues at the company, industry, and economy levels,
needed. In deciding what, when, and how to delegate, as CEO Andy Grove demonstrated.
managers can begin by asking a few simple questions to
The fundamental task of a company’s top decision makers
determine what will work best in their organization.
is to synthesize all information that could have a significant
Is iitt m
moore im
impportant ttoo m
maake tth
he bbes
estt de
deci
cisio
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er,, effect on the company’s current and future performance and
good en enooug
ughh de
deci
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n? If there’s a high degree of urgency make the big decisions on that basis. They can rely on
around decision-making, it’s often best for higher-level advisers, experts, consultants, and what we earlier described
managers to make the decisions without dialogue and as extreme action teams. But ultimately, the buck stops with
consensus. 8 Of course, quick decisions may turn out to be the CEO. So while some decisions should be delegated to
wrong, but if the costs of delay are high enough, they are employees with superior knowledge of local conditions,
often worth the risk. Does this need for quicker decisions overall authority — including decisions about which
justify the potential for a demotivating effect on employees? decisions to delegate — cannot be passed down the line.
That depends on the reason speed is needed, the capability
What do em empplo
loyyees ffeeel tth
hey ccur
urrren
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of top managers, and the attitudes and expectations of
Many employees naturally feel a sense of ownership over
employees.
what is currently in their control, such as their budgets and
Speedy decisions are often made in response to threats — decision rights, and making changes to those decision rights
typically a sudden and unexpected drop in company poses particular challenges.
performance. In the face of an existential threat, a company’s
One of us taught a course for many years with complete
decisions become highly consequential. Under these
control over topics, readings, and classroom activities, then
conditions, a decentralized approach is likely to perform
moved to another university where the curriculum for that
less well, because subordinates are less willing to assume
course was controlled by the department to ensure
responsibility in the face of such risk and may make slow or
uniformity across instructors. Losing that autonomy led to a
poor decisions. In such cases, senior managers are likely to
lot of frustration and resentment.

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The behavioral economics concept of loss aversion comes

into play here: People tend to value things they had and
Matter: The Perils of the Bossless Company (PublicAffairs,
lost more highly than things they never had. Any choices
2022).
that centralize decisions that were previously decentralized
are going to cause some pain. Managers must convincingly
explain the rationale for change to affected employees.
References
Is iitt fa
fair?
ir? Organizations must consistently apply fair and 1. N.J. Foss and P.G. Klein, “Why Managers Still Matter,” MIT Sloan
transparent principles when resolving disputes — that is, Management Review 56, no. 1 (fall 2014): 73-80.

they must demonstrate procedural justice. If employees 2. The terminology is from K. Foss and N.J. Foss, “Managerial Authority
believe that the processes are fair, they are more likely to When Knowledge Is Distributed: A Knowledge Governance Perspective,”
accept managerial intervention, whether that be occasionally in “Knowledge Governance: Perspectives From Different Disciplines,” ed.
overriding an employee’s decision or centralized authority N.J. Foss and S. Michailova (Oxford, England: Oxford University Press,
2009), 108-137.
itself. Can managers explain when and why autonomy must
be curtailed? Do employees feel that their concerns about 3. H.A. Simon, “Organizations and Markets,” Journal of Economic
autonomy and responsibility are heard and taken seriously? Perspectives 5, no. 2 (spring 1991): 25-44.
If so, then choosing not to delegate certain decisions, or to
4. M. Annosi, N. Foss, and D. Martini, “When Agile Harms Learning and
intervene when necessary, is likely to work. If not, employees Innovation: (and What Can Be Done About It),” California Management
could become disgruntled. Review 63, no. 1 (November 2020): 61-80.

The need for hierarchy isn’t going away, but the form it takes 5. K.J. Klein, J.C. Ziegert, A. Knight, et al., “Dynamic Delegation: Shared,
Hierarchical, and Deindividualized Leadership in Extreme Action Teams,”
is changing: deciding how things will be done rather than
Administrative Science Quarterly 51, no. 4 (December 2006): 590-621.
telling people what to do, and designing and enforcing the
rules of the game rather than making everyone play it in 6. Ibid.
a certain way. As Haier Group founder and CEO Zhang
7. K. Foss, N.J. Foss, and X.H. Vázquez, “‘Tying the Manager’s Hands’:
Ruimin put it, “Leaders of other enterprises often define Constraining Opportunistic Managerial Intervention,” Cambridge
themselves as captains of the ship, but I think I’m more the Journal of Economics 30, no. 5 (September 2006): 797-818.
ship’s architect or designer. That’s different from a captain’s
8. “Decision Making in the Age of Urgency: A Survey,” PDF file (Boston:
role, in which the route is often fixed and the destination
McKinsey & Co., April 2019), www.mckinsey.com.
defined.” 9
9. A. De Smet, R. Steele, and H. Zhang, “Shattering the Status Quo: A
In redesigning managerial authority and hierarchy for the Conversation With Haier’s Zhang Ruimin,” McKinsey Quarterly, July 27,
21st century, leaders must realize that they don’t need to 2001, www.mckinsey.com.
know everything, but only just enough, and they need to
consider what their employees want and think is fair in
designing structures and systems.

About the Authors

Nicolai J. Foss (@nicolaifoss) is a professor of strategy at
Copenhagen Business School. Peter G. Klein (@petergklein)
is a professor of entrepreneurship at Baylor University. This
article is adapted from their latest book, Why Managers

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