Recapping the Challenges of Top-Down Organization

During November, I did a series of posts examining some of the systematic weaknesses of top-down social structures. This month I’ll be returning to that theme, and I thought I’d start by summarizing the key points I made in my earlier posts.

The disadvantages of top-down social systems can be appreciated from two vantage points: from the bottom of the hierarchy, and from the top. For those at the bottom of large hierarchies, the primary problem is a shortage of freedom. As Paul Graham explains, a basic premise hierarchical organization is that, at each level of the hierarchy, a single guy (the boss) acts as a stand-in for all the people below him. So if your boss manages 10 people, you’re effectively sharing one person’s worth of freedom with 9 other people. And the larger the company, and the deeper the organizational hierarchy, the less freedom any given employee enjoys.

This can be a real problem for organizational productivity because good ideas rarely respect the chain of command. Almost everyone who has worked in a large organization has a story in which their efforts to improve their organization’s efficiency or effectiveness was thwarted by bureaucratic obstacles. Which is to say that the constraints of hierarchical organization left them insufficient freedom to put their ideas into practice.

From the top of the hierarchy, the fundamental problem is a shortage of information. A major function—perhaps the major function—of a manager is to act as an “information funnel.” A manager gathers and synthesizes information from below her and then transmits the most pertinent bits of information to the management layers above her.

Transmitting all of that information in its raw form would be overwhelming to its recipients, so good abstractions are needed. Budgets, organizational charts, product lines, brands, mission statements, and the like are tools that allow senior managers to make some sense out of the activities of the hundreds or thousands of people below them. Good abstractions also help senior management to clearly and crisply communicate instructions to the people below them.

But abstractions are leaky. They can only imperfectly represent the messy underlying reality. Which means that feedback is crucial for effective decision-making. Everyone makes mistakes, but effective organizations give their decision-makers rapid and clear feedback when they screw up.

One difficulty is that the information conduits—middle managers—are not disinterested parties. It’s their job to pick and choose which information to pass along, and they have powerful incentives to emphasize information that makes themselves look good and leave bad news on the cutting room floor. As a result, the information that comes out of the “information funnel” tends to be a lot rosier than the information that went in. Indeed, it’s common for the leaders of large, dysfunctional organizations to be among the last to discover problems with their decisions. Because the people under them are providing them with a steady stream of seemingly-positive feedback, they feel like they’re well-informed about the state of the organization even as they ignore festering problems. The consequences of this are never good; they range from comical to catastrophic.

So viewed from the top of the organizational hierarchy, the fundamental disadvantage of hierarchical management is that it asks managers to make decisions affecting thousands (or even millions) of people with limited, fragmentary, and distorted information. A good manager understands this and devises strategies to detect leaky abstractions before they become serious problems. A bad manager is blissfully ignorant of this danger and drives his organization off a cliff.

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