These rank-based hierarchies devote a lot of time and energy to resisting change and perpetuating relatively mechanical patterns of behavior through producing more negative than positive feedback. As someone once said, most organizations better represent their history than their promise. They fight hard to remain stable. This is natural. Any tendency to change is met with negative feedback. Companies work hard to survive.
Downsizing is one of today's most egregious ways for hierarchical companies to fight to stay alive . We need to understand and appreciate that, even knowing that these strategies don't usually work. A 1996 study by the American Management Association on corporate downsizing discovered that only 33 percent of corporate downsizers experienced productivity gains afterward, while 77 percent experienced significant drops in employee morale . More than half (53 percent) experienced a decrease or no increase in operating profits the following year.
Hierarchies possess characteristics that at first make them successful in organizations. Their pyramidal shape provides stability and resiliency against any threats that might endanger them. With clear, integrated lines of command, they possess a negative feedback mechanism to quiet any internal disturbances or disruptions to the formalized systems and processes. In fact, in a hierarchical organization, change initiatives usually produce few or no results. This is not due to malevolent intentions on anyone 's part, but to the dynamics of the whole. The negative feedback mechanism of the hierarchical structure, which makes it so successful, is so strong that it is always trying to attain equilibrium ”any threats to stability or the status quo will be absorbed into the already existing systems and procedures.
Many hierarchical organizations enthusiastically embrace some new change initiative ”perhaps involving a large investment of money ”only to see no long- term results. After this happens a few times, people in the organization become cynical of the next "flavor of the month" program that comes along. Unfortunately, the failure of these programs is inevitable given the dynamic of the hierarchy, no matter how good the intentions of the people in it. So as a hierarchical organization gets bigger and bigger, or as the rate of energy circulation continues to increase, its very structure, which once was so beneficial, now causes the energy input to produce fewer and fewer returns. The more complex an organization gets, the greater its support costs become.
In a hierarchical organization, these support costs ”including the costs to continually legitimize the hierarchy, to control the hierarchy and keep it at equilibrium, to standardize procedures, and to maintain other auxiliary services supporting the hierarchy ”continue to increase. These costs of hierarchy all continue to increase exponentially while the benefits of hierarchy increase incrementally. Businesses will frequently attempt quick remedies to cover up decreasing returns. Layoffs, mega-acquisitions, and reorganization of the corporate hierarchy are just a few of the short-term solutions organizations attempt, but diminishing returns will always catch up with them.
Business organizations are problem-solving entities. However, as Arie De Geus (1997), former director at Shell International, has pointed out, the average life expectancy of all firms is about twelve and a half years ”so it seems that decreasing returns eventually undermine most rank-based businesses. A complex hierarchical organization must continuously increase investment just to maintain the status quo. Enlarging bureaucracy, increasing specialization, and spending more for communication are just some of the investments required. The problem with these investments is that they all become increasingly costly as benefits are reduced, making the organization increasingly vulnerable to collapse over time. As collapse nears, communication and control decrease, people interact less, and productivity drops off. When a complex hierarchical organization reaches this point, some organizational change is required to avoid complete collapse, being taken over, or losing parts of the company to invaders or other competitors . This was about the situation of the company with whom I was consulting. After speaking with several different employee groups, all of whom expressed the same frustration of working in a rank-based company, I had to report to the senior executives.