Saturday, March 31, 2007

In what ways does management hierarchy help organizations to develop structure?

Management hierarchy is a means to distribute power and allocate resources in an organization. This structure is the marketplace's inheritance from feudalism and monarchy. It works well if leaders are benevolent and falls apart when leaders put their own interests above those of the organization.

Profit making corporations are bound by law to provide the best return to their stockholders which is why management is usually given stock. This makes sure that management's interests and the stockholders' are aligned which in turn means management prioritizes its own interests over other stakeholders like employees, customers, providers and the larger community.

The present debate about global warming highlights how many businesses exist by externalizing their costs. Stock incentivized management and employees are motivated to increasingly externalize costs. This is part of a growing body of evidence that a business is unsustainable unless it satisfies the needs of all its stakeholders. There is therefore the possibility that the dangers in self-serving hierarchies will be understood and as a form they will be obsoleted.

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