What is an organizational structure called when managers at the top are in charge of those beneath them?

Learning Outcome

• Differentiate between the functions of top managers, middle managers, first-line managers, and team leaders.

Vertical management, also called top-down management, refers to the various levels of management within an organization. Managers at different levels are free to focus on different aspects of the business, from strategic thinking to communicating information to operational efficiency. During the nineteenth century and much of the twentieth century, vertical management was highly structured with many layers of management (as depicted by a pyramid). In industries where processes and conditions are stable and where ongoing innovation is less critical, the vertical structure of management can still be very efficient. Workers in labor-intensive industries such as manufacturing, transportation, and construction need to follow established procedures and meet specific goals. Everyone knows who is in charge and assumes the job they do today will be the same next year or in five years.

Vertical management in a traditional organizational structure

A main disadvantage of vertical management is that it limits information flow from the lower levels of the organization to the upper levels (like water, information flows downhill easily). Without easy two-way communication, top management can become isolated and out of touch with how its plans affect core processes in the organization. It also fosters vertical thinking. Vertical thinking refers to using traditional and recognized methods to solve particular problems. It is the opposite of “thinking outside of the box.” The digital age exposed the shortcomings of management that addressed problems in formal or bureaucratic approaches at the expense of creativity and innovation. Today, many organizations use “flatter” structures, with fewer levels between the company’s chief executives and the employee base. Most organizations, however, still have four basic levels of management: top, middle, first line, and team leaders.

Top-Level Managers

As you would expect, top-level managers (or top managers) are the “bosses” of the organization. They have titles such as chief executive officer (CEO), chief operations officer (COO), chief marketing officer (CMO), chief technology officer (CTO), and chief financial officer (CFO). A new executive position known as the chief compliance officer (CCO) is showing up on many organizational charts in response to the demands of the government to comply with complex rules and regulations. Depending on the size and type of organization, executive vice presidents and division heads would also be part of the top management team. The relative importance of these positions varies according to the type of organization they head. For example, in a pharmaceutical firm, the CCO may report directly to the CEO or to the board of directors.

Top managers are ultimately responsible for the long-term success of the organization. They set long-term goals and define strategies to achieve them. They pay careful attention to the external environment of the organization: the economy, proposals for laws that would affect profits, stakeholder demands, and consumer and public relations. They will make the decisions that affect the whole company such as financial investments, mergers and acquisitions, partnerships and strategic alliances, and changes to the brand or product line of the organization.

Middle Managers

Middle managers must be good communicators because they link line managers and top-level management.

Middle managers have titles like department head, director, and chief supervisor. They are links between the top managers and the first-line managers and have one or two levels below them. Middle managers receive broad strategic plans from top managers and turn them into operational blueprints with specific objectives and programs for first-line managers. They also encourage, support, and foster talented employees within the organization. An important function of middle managers is providing leadership, both in implementing top manager directives and in enabling first-line managers to support teams and effectively report both positive performances and obstacles to meeting objectives.

First-Line Managers

First-line managers are the entry level of management, the individuals “on the line” and in the closest contact with the workers. They are directly responsible for making sure that organizational objectives and plans are implemented effectively. They may be called assistant managers, shift managers, foremen, section chiefs, or office managers. First-line managers are focused almost exclusively on the internal issues of the organization and are the first to see problems with the operation of the business, such as untrained labor, poor quality materials, machinery breakdowns, or new procedures that slow down production. It is essential that they communicate regularly with middle management.

Team Leaders

A team leader is a special kind of manager who may be appointed to manage a particular task or activity.  The team leader reports to a first-line or middle manager. Responsibilities of the team leader include developing timelines, making specific work assignments, providing needed training to team members, communicating clear instructions, and generally ensuring that the team is operating at peak efficiency. Once the task is complete, the team leader position may be eliminated and a new team may be formed to complete a different task.

Every organization has a structure, from a small startup to a large corporation. As you hire employees and set up your leadership team, you may not realize you’re making very important decisions that have a direct impact on your overall work culture. With a pyramid organizational structure, a CEO or president sits at the top, with teams of leaders flowing down toward the bottom and information trickling downward.

A pyramid organizational structure functions following the shape it's named for, with one leader at the top, a small executive leadership team below, and tiers of managers leading down to the bottom team of employees. Each tier of managers manages the tier below, which distributes the responsibility more evenly. It's designed to ensure each employee is better served by a manager above, who can provide personal attention to his small team.

Also called the hierarchical organizational structure, the pyramid organizational structure assumes that information will be passed down the line. So if a CEO meets with the small leadership team beneath him, those leaders will meet with the small tier of leaders beneath them, passing the information on, and it will then be shared with the next tier.

There are some issues with pyramid structures, including the fact that information often doesn’t trickle all the way down. All it takes is one manager forgetting to tell his team and communication can break down. It can also lead employees to feel as though they’re disconnected from the leaders at the top, who rarely communicate directly with anyone but the people directly beneath them.

To better understand the pyramid structure, it can help to learn more about the opposite approach, which is a flat organizational structure. In recent years, as businesses strive for a more casual, laid-back work culture, flat structures have become extremely popular, especially among small startups. This structure encourages an open office environment where every employee feels as though she’s in direct content with the leadership team, which makes her feel more invested in the business as a whole.

With a flat organizational structure, the middle management seen in pyramid-style organizations is eliminated, with top management directly overseeing bottom-tier employees like shop floor workers and salespeople. In a small business, this may involve just one manager overseeing a handful of employees. However, as an organization grows, multiple leaders may be brought in to help with overseeing large teams of employees alongside the CEO or president.

Unfortunately, the flat organizational structure is not as scalable as a pyramid structure. A business with 20 employees can easily sustain one manager who communicates with everyone. However, imagine having 100 or even 1,000 employees all reporting directly to you. Even if you have 20 managers, each directly overseeing 50 employees, you’ll struggle to keep up with 20 managers, who will also struggle to manage the many employees under them.

Because both options have their negatives, many businesses are now opting for a compromise between the two extremes. A flatarchy serves as a hybrid of the two approaches, which makes it easy for a small startup designed as a flat organization to gradually manage its growth without alienating existing employees.

In a flatarchy, teams are siloed, with duties segregated based on the work being performed. A flat organization that has a special project, for instance, can appoint a team lead to head up that project, then disband that team as soon as the project ends. This flexibility makes a flatarchy popular with businesses that begin to find their flat structure unwieldy as they grow.