The traditional business organization evolved over many years . German sociologist Max Weber observed that the Industrial Revolution put a premium on the specialization of labor. Organization form and structure followed the need. What emerged were hierarchically structured entities in which workers at the lowest level reported to first-line supervisors who, in turn , reported to middle managers in their function.
Middle management, which typically consisted of several layers within a function, was organized the same way, with each ensuing level possessing more decision-making responsibility and authority than the one beneath it.
The highest level of middle management reported to the top manager of the functionusually a senior vice presidentwho, in turn, reported to the president or CEO. This individual, with or without the input of his vice presidents , made strategic decisions and sent them back down through the hierarchy to be implemented.
In this model, the various functions that made up the organization remained separateor kept in silos all the way to the top. Key operational decisions related to each function were made by the senior vice president of that function, who, mirroring the CEO, made the decisions and relied on his underlings to implement them. As in the military, to which it bore more than a passing resemblance, "command and control" was the paradigm of the hierarchical organization.
For most of the century and a half following the Industrial Revolution, the hierarchical organization flourished, in large part, because of the high degree of control its leaders were able to exercise. Henry Ford, Alfred Sloan, Andrew Carnegie, Thomas Watson, John D. Rockefeller, William Randolph Hearst, and other giants of modern-day business built empires by running a tight shipthat is, retaining near-absolute power over the vast hierarchical organizations they had created.
In the last half of the twentieth century, however, the traditional business organization fell under attack by the four horseman of the revolution around us: globalization, the growth of information technology, new forms and intensity of competition, and pressure for rapid innovation.