By Henry Yelin So far in 2018, nearly half of the surge in the S&P 500 index can be attributed to just three companies: Amazon, Microsoft, and Netflix. These companies, along with their peers like Google and Apple, have become dominant players in the technology industry and their products are often considered essential to our daily lives. While there is widespread awareness of these products, there is less information about how these companies work internally and how their employees collaborate across the different divisions, teams, and layers of management. These layers and relationships across a company can be defined as the company’s organizational hierarchy, and these hierarchies can vary in interesting ways throughout the tech industry. Understanding these hierarchies yields fresh insights into how these companies operate and what makes them so effective and innovative. The Heinz Journal asked three different experts to share their views and experiences on organizational hierarchies. Youlian Simidjiyski, a professional software engineer, worked for five years at Microsoft in Seattle and now works for Google in Pittsburgh. He studied mathematics at the University of Chicago. David Lassman is the Distinguished Service Professor of Organizational Management at Carnegie Mellon’s Heinz College, where he has been a faculty member since 2013. Prior to joining CMU, David’s career included various operational and engineering management positions over 25 years. He is a graduate of Princeton University and holds an MBA from Harvard Business School. Karim Jetha is an Assistant Professor in the Department of Information Systems and Business Analytics at Florida International University’s College of Business. He completed his undergraduate degree at Emory University and went on to obtain JD/MBA degrees and a PhD in Management Information Systems from the University of Georgia. This interview has been edited and condensed for clarity. The views and opinions expressed are solely those of the authors and do not necessarily reflect the official policy or position of their current or former employers. Q: What is the most critical aspect of an organizational hierarchy? Youlian: Organization hierarchies exist in order to organize labor. To do this, the hierarchy should provide clear expectations from its employees at all levels of the management chain, and it needs to give those employees the tools necessary to meet those expectations. David: I don’t think there is one most critical aspect, many facets of organizational structure can impact the culture. There are five particular attributes of an organizational hierarchy that come to mind: reporting relationships and the depth of the organizational chart; decision-making processes; policies and procedures; big-picture thinking by employees; and flexibility and adaptability to new information. Karim: A hierarchy helps coordinate labor within an organization by creating a structure for assigning tasks and schedules. Hierarchies also help to also ensure that necessary information flows upward to organizational decision makers so that they have the tools they need to be effective. We can also think about hierarchies as dispute resolution tools or systems of control in organizations. Q: How does a company’s industry influence its organization hierarchy? In particular, what ways do technology companies have unique structures that are well suited to their industry? Youlian: Big tech companies often have very high standards for quality control. This leads to a lot of process before things get launched, and process often correlates with the complexity of the hierarchy. David: The industry can impact the hierarchy. For example, in highly regulated industries, such as banking and health care, control tends to be more important than in non-regulated industries. If employees don’t follow the regulations, penalties (fines and in extreme cases, prison) can result so making sure employees follow procedures is critical. Companies that value this control tend to have more layers and tend to give less decision-making authority to lower level employees. Companies in fast moving industries need to have organizational structures that allow them to respond to competitors and market changes very quickly. Structures that slow down decision making and stifle creativity won’t do well in such industries. Karim: Many young technology companies appear to have flatter organizational hierarchies with broader, horizontal spans of control within them. These organizations may not face the structural complexity that mature organizations face after years of organic growth and creation of new business units via merger or acquisition. As such, functional areas in these organizations may be more interdependent or require less managerial oversight. This effect may be amplified in the technology industry where firms can be relatively asset-light compared to, say, manufacturing firms. Mature technology companies—Oracle, Intel, Microsoft, even Google and Facebook—present a different organizational archetype. Compared to leaner technology firms, these organizations are large and complex. As such, they may be more likely to build a robust hierarchy that supports their decision making and information processing needs. Q: How can organizational hierarchies be assessed? Are there measurable attributes or qualitative indicators that show strengths or weaknesses? Youlian: The organization hires and promotes the kinds of person it values most. From a development perspective, we can ask if there are advanced promotion and technical leadership opportunities that do not involve entering management. If those positions exist, how does their promotion velocity compare to promotion velocity in other positions of equivalent seniority? There are likely similar questions that could be asked in other divisions of the company, such as marketing or research. Assessing a hierarchy’s effectiveness is a challenging problem because the organization’s output product depends not only on the hierarchy, but also the strength of its employees, the company’s market position, the outcome of high-level strategic decisions, and the amount of resources allocated to the project. At least within tech, I recommend looking to the individual employees for this assessment. Software engineers tend to be acutely aware of pain points in their day-to-day jobs and have a good sense of whether the organization’s stated goals and methods reflect today’s reality, reasonable aspirations, or outright fantasy. An easy metric to track would be employee turnover rate relative to market success and compensation. If a tech company is willing to be honest with itself and wants to dig deeper, anonymous polling can go a long way towards finding out where the hierarchy is or is not aligned with the organization’s objectives. David: Measuring the effectiveness of an organizational hierarchy is difficult for two reasons: 1) unlike profit or quality metrics, there isn’t a standardized organizational hierarchy effectiveness metric and 2) there are some metrics we can use, but there may be other factors impacting these measures, beyond hierarchy. There are some measurements which would provide an indication of the effectiveness of the org structure: employee turnover, results of engagement surveys, time-to-market with new products, and profit. But other factors – leadership, incentive systems, training – could have a big impact on any of these measures, so it would be impossible to solely credit hierarchy. Karim: We can assess the nature of a hierarchy in many ways. At a basic level, we can think about how power or authority is distributed across the organization—strategic decision making can be relatively centralized at the hands of a central leader such as a CEO or decentralized in the hands of organizational subunit heads. Similarly, we can think of the “shape” of the organization by considering the number of distinct hierarchical levels and the number of people that report to each manager. Raising or lowering the span of any given manager’s supervision may change their leadership style simply due to the nature of supervising significantly greater or significantly fewer people. Alternatively, we could also consider the nature of the division of labor within a hierarchical setting. If work is divided such that subunits are relatively interdependent, workers may build a broad base of expertise and the organization may not need to monitor the employees to coordinate their labor. This can be assessed quantitatively by using social network analysis methods which seek to identify structural patterns in organizational communications. Which organizational form is best? Well, it depends. The most effective firms will consider the nature of both their internal operating environment and their external competitive environment in structuring themselves to balance the various tradeoffs at play. The Heinz Journal thanks Youlian, David, and Karim for their time and insightful contributions to this article. Henry Yelin is a first-year student in Carnegie Mellon’s Heinz College. He is pursuing a Master of Information Systems Management degree with a focus in IT Strategy and Management. Prior to Carnegie Mellon, Henry was most recently living in New York City and working in financial services advisory.]]>
About the author
The Heinz Journal is a student-run publication of the Heinz College of Information Systems and Public Policy at Carnegie Mellon University, dedicated to publishing works that link critical and theoretical analysis with policy implementation.