Hierarchy

Hierarchy is a way to structure an organization using different levels of authority and a vertical link, or chain of command, between
superior and subordinate levels of the organization. Higher levels control lower levels of the hierarchy. You can think of an
organizational hierarchy as a pyramid. The highest level of authority is at the top of the pyramid, and orders flow from this top level
down to the next level where it continues to move on down until it reaches the level where the order is supposed to be carried out.

Information and directions flow vertically in a hierarchical structure. Information flows up through each level until it reaches the top.
After all the information has been received and assessed, a decision will be made at the top and will flow down through the levels of
the hierarchy until it reaches the level where the decision will be implemented. Also, note that the top level of the hierarchy often
coordinates all the activities and communication of the various parts of the organization.

Hierarchy Flow Chart

Let's look at an example. Nathan has received a report from his research and development division that a new cleaning solvent has
successfully passed all regulatory requirements and is ready to be produced and marketed to the public. Nathan sends directions to his
vice president of finance to prepare a budget for financing the production and marketing of the new chemical. He directs his marketing
VP to have a marketing plan developed and his VP of production to develop a production schedule based on the projected budget
received from the finance VP.
Each VP will delegate part of their task to their respective department heads who may, in turn, delegate some tasks to their
supervisors. Once the task has been completed, the information will flow back up through the hierarchy to Nathan where it will be
assessed and further decisions will be made.

Hierarchy Chart

Types of Managers in Principles of Management

There are three main types of managers: general managers, functional managers, and frontline managers. General managers are
responsible for the overall performance of an organization or one of its major self-contained subunits or divisions.

Functional managers lead a particular function or a subunit within a function. They are responsible for a task, activity, or operation
such as accounting, marketing, sales, R&D, production, information technology, or logistics. Frontline managers manage employees
who are themselves not managers. They are found at the lowest level of the management hierarchy.

For illustration, consider a large diversified enterprise like General Electric. General Electric is active in many different businesses:
Among other things, it makes jet engines, power plants, medical equipment, railway locomotives, and lighting products. GE also sells
insurance, owns NBC, and offers a wide range of financial services, particularly to industrial customers. GE is organized into different
business divisions, and each division has its own functions, such as R&D, production, marketing, sales, and customer services.
GE is thus known as a multidivisional enterprise. Multidivisional enterprises like GE have four main levels of management: the
corporate level, the business level, the functional level, and frontline managers. General managers are found at the corporate and
business levels. Functional managers are found within the divisions where they manage functions or subunits within those functions.
Frontline managers are found deep within functions managing teams of nonmanagement employees.

CORPORATE-LEVEL GENERAL MANAGERS

The principal general manager at the corporate level is the chief executive officer (CEO), wholeads the entire enterprise. In a
multidivisional enterprise the CEO formulates strategies that span businesses—deciding, for example, whether to enter new businesses
through acquisitions or whether to exit a business area. The CEO decides how the enterprise should be organized into different
divisions and signs off on major strategic initiatives proposed by the heads of divisions. The CEO exercises control over divisions,
monitoring their performance and deciding what incentives to give divisional heads. Finally, the CEO helps develop the human capital
of the enterprise.

At General Electric Jeffery Immelt has been the CEO since 2001. Immelt has articulated a grand vision that includes pushing GE into
environmentally friendly technologies. Immelt is doing this because he thinks it makes good business sense. He believes that tighter
environmental standards are inevitable, that environmentally friendly technologies are also cost-efficient, and that customers will
increasingly demand them.

Thus GE is investing in more fuel-efficient locomotives and jet engines; coal-based power plants that use technologies to strip almost
all pollutants out; technologies for sequestering carbon dioxide emissions; water purificationsystems; and power-generating windmills.
Under Immelt GE is also exiting some businesses that do not fit his strategic vision, including GE’s insurance business, which he sold
to Swiss Reinsurance Co. in 2006 for $6.8 billion.

The CEO of a corporation also manages relationships with the people who own the company— its shareholders. The CEO reports to
the board ofdirectors, whose primary function is to make sure the strategy of the company is consistent with the best interests of
shareholders. The CEO also normally sits on the board and spends considerable time describing company strategy to shareholders.

Members of the top management team help the CEO in all of this. The team normally includes a chief financial officer (CFO), who is
responsible for the overall financing of the corporation. It may also include a chief operating officer (COO), who makes sure
operations are run efficiently within the company; and in some high-technology enterprises a chief technology officer (CTO) is
responsible for developing new technologies and products within the corporation.

BUSINESS-LEVEL GENERAL MANAGERS

With a multi divisional enterprise such as General Electric, business-level general managershead the different divisions. GE has
general managers running its power generation business, medical equipment business, lighting business, and so on. These general
managers report directly to Jeffery Immelt. Within an organization that is active in just one line of business, such as Burberry or
Starbucks, the business and corporate levels are the same.
Business-level general managers lead their divisions—motivating, influencing, and directing their subordinates—and are responsible
for divisional performance. Business-level general managers translate the overall strategic vision for the corporation into concrete
strategies and plans for their units. Thus the head of GE’s locomotive business, together with that team, has formulated strategies for
making locomotives more environmentally friendly.

These include the development of diesel locomotives with lower emissions and hybrid diesel–electric engines. Business-level
managers often have considerable latitude to develop and implement strategies that they believe will improve the performance of their
divisions, so long as those strategies are consistent with the overall goals and vision for the entire corporation.

Businesslevel general managers organize operations within their division, deciding how best to divide tasks into functions and
departments and how to coordinate those subunits so that strategy can be successfully implemented. Business-level general managers
also control activities within their divisions, monitoring performance against goals, intervening to take corrective action when
necessary, and developing human capital.

FUNCTIONAL MANAGERS

Below general managers we find functional managers, who are responsible for specific business functions that constitute a company
or one of its divisions. Thus a functional manager’s sphere of responsibility is generally confined to one organizational activity
(purchasing, marketing, production, or the like), whereas general managers oversee the operation of the entire company or a self-
contained division.

The head of each function leads that function. Functional managers motivate, influence, and direct others within their areas. Although
they are not responsible for the overall performance of the organization, functional managers nevertheless have a major strategic role:
to develop functional strategies and draft plans in their areas that help fulfill the strategic objectives set by business- and corporate-
level general managers.

In GE’s aerospace business,for instance, manufacturing managers develop manufacturing strategies consistent with the corporate
objective of producing environmentally friendly products and generating high performance.

They might, for example, decide to implement process improvement programs to improve quality and boost employee productivity.
Moreover, functional managers provide most of the information that makes it possible for business- and corporate-level general
managers to formulate realistic and attainable strategies. Indeed, because they are closer to customers than are typical general
managers, functional managers themselves may generate important ideas that subsequently may become major strategies for the
company.

Thus it is important for general managers to listen closely to the ideas of their functional managers. An equally great responsibility for
managers at the functional level is strategy implementation: the execution of corporate- and business-level strategies.

The heads of functions are responsible for developing human capital within their organizations. They also organize their functions into
subunits such as departments or teams; exercise control over those subunits; set goals; monitor performance; provide feedback; and
make adjustments if necessary. Thus the manufacturing function might be further subdivided into departments responsible for specific
aspects of the manufacturing process.

There might be a procurement department, a production planning department, an inventory management department, and a quality
assurance department. Each department will have its own managers, who report to their superiors, the functional heads; those
managers will be responsible for leading their units, organizing and controlling them as necessary, strategizing for the tasks under
their control, and developing employees within their units.

FRONTLINE MANAGERS

Furthest down the management hierarchy are frontline managers, who manage employees who are themselves not managers. A
frontline sales manager might manage 10 salespeople; a frontline manager in manufacturing might manage a work group of employees
who physically assemble a product; and a frontline engineering manager in a software company might manage a group of developers
writing computer code.

Most complex organizations have many frontline managers. For example, the oil and energy company BP has some 10,000 frontline
managers who oversee 80 percent of the organization’s 100,000 employees.

They work in every part of the company— from solar plants in Spain to drilling rigs in the North Sea and marketing teams in Chicago.
Their decisions, in aggregate, have an enormous impact on BP’s performance. 13 Most successful managers begin their managerial
careers as frontline managers. In this job they encounter the realities of management, which as we will see in the next section often
differ from their expectations.

Frontline managers are critical to maintaining the performance of an organization. They lead their teams and units. They strategize
about the best way to do things in their units and about the best strategies for their functions and the company. They plan how best to
perform the tasks of their units. They organize tasks within their teams, monitor the performance of their subordinates, and try to
develop the skills of their subordinates.