But that doesn’t mean traditional, command-and-control organizations are right for today’s environment. We see a confluence of business and social trends influencing the development of new kinds of hierarchies. Rapid technological progress, instant communication, value creation based on knowledge rather than physical resources, globalization, and a more educated workforce require us to rethink how we wield managerial authority. Meanwhile, individual views on politics, religion, and culture also inform our attitudes toward hierarchies — such as whether we value autonomy or admire authoritarian figures. All of these factors point to a new, different role for hierarchy to play in meeting the challenges of the 21st century.

The key challenge for designing and operating hierarchies today and tomorrow is to balance two opposing forces. The first is the desire, common to us all, for empowerment and autonomy, which helps companies mobilize employees’ creativity and exploit their unique knowledge and capabilities. The other is the need — particularly in environments characterized by rapid change and interdependent activities across the enterprise — to exercise managerial authority on a large scale.

Companies need clear, fairly enforced policies and procedures that achieve coordination and cooperation while respecting employee desires for empowerment and relative autonomy. Managers have to figure out when to intervene and when to let employees handle problems themselves.

These are tough issues without easy solutions. Which decisions should be decentralized (or delegated)? How much discretion should employees have over the decision areas delegated to them? How are these employees incentivized and evaluated? How do executives make sure that all these decentralized decisions mesh together? A central lesson of theories and evidence on organizational structure is that there are no universally “best” answers to these questions, only trade-offs that depend on the contingencies facing the company. Identifying and acting on those trade-offs — not decentralizing everything, everywhere — is the key to successful leadership.

Some proponents of the so-called bossless company pretend that these trade-offs don’t exist. They hold that only full decentralization or delegation — “make everyone a boss” — makes companies innovative and adaptable.

When COVID-19 was declared a pandemic in March 2020 and lockdowns began, few leadership gurus proposed making everyone a boss to address the challenges that companies suddenly faced. Rather, managers had to figure out how their companies could survive, which meant changing their business models, enabling remote work for employees, and adjusting to massive demand shocks and supply chain disturbances. Of course, the need for many companies to shift to a remote work model required that many tasks and decisions be delegated. The point is that these changes had to be coordinated, with key decisions made from the top.

To better manage the tension between hierarchical control and individual autonomy, we need to rethink managerial authority.

Rethinking Authority

There is compelling evidence that many companies are removing layers of management and that more decisions are being delegated to employees. Organizations are still hierarchical, but hierarchy is changing its form. There is also evidence that the exercise of authority is changing.

Authority has many faces: It may mean the right to hire, fire, instruct, supervise, intervene, and sanction. But the exercise of managerial authority is also associated with other behaviors: leading, creating structures and processes, forging consensus, aligning behavior around shared goals, and fostering change.

We call these two types of authority Mark I and Mark II, respectively.2 They roughly correspond to the distinction between management and leadership. Clearly, the same manager can exercise both types of authority, but it is crucial to understand how they differ and when each is most appropriate, because using one when the situation demands the other can be disastrous.

The traditional view of authority (based on the work of Ronald Coase, Oliver Williamson, and Herbert Simon) assumes that the boss can select the appropriate task, knows all the possible ways to perform it, and can observe the output, so that rewards and punishments can be administered appropriately. In other words, the boss doesn’t want to perform the task directly (perhaps because she is too busy with other tasks), but she knows as much about the task as the worker does, and she may or may not observe exactly what the worker is doing as he performs it.

In the modern, knowledge-based economy, however, it is increasingly unlikely that bosses will know everything their workers know. A tech CEO might be skilled at finance and marketing or good at strategic planning and human relations but might not know how to code. A sales manager might understand the product but be unfamiliar with a specific sales territory.

In his later work, Simon described a second notion of authority (perhaps reflecting a changing view of what kind of authority is important in more modern conditions): The role of the boss is to decide what decisions should be delegated.3 That is, the boss selects a target outcome, decides which workers are best suited to achieve it, chooses how much discretion to give to those workers, and steps aside. Authority in this sense is not about choosing specific tasks and making sure those tasks are performed, but about setting goals, writing job descriptions, selecting people, and evaluating results. This is our Mark II authority — not micromanagement, but macromanagement.

Organizational norms currently demand that leaders shift toward Mark II authority and away from Mark I, because most workers don’t want or need a manager telling them what to do and when to do it. Rather, managers have to design the system in which empowered, autonomous workers can flourish.

Certainly, exercising authority via the choice of delegation can add new challenges. Ironically, some workers may prefer less delegation, perhaps because they are risk averse. Another drawback relates to interdependencies. An organizational structure with lots of delegation is more complicated than one based on simple command and control, and managers have to make sure employees are exercising the discretion given to them under Mark II authority in ways that are coordinated with each other and the company’s goals. Moreover, company decision-making may be slower under Mark II authority, especially if workers need to discover solutions independently. So while this authority results in a system that is typically more rewarding for workers and more motivating than the traditional form of authority, it might not be the best choice in all situations.

The need for hierarchy isn’t going away, but the form it takes is changing: deciding how things will be done rather than telling people what to do, and designing and enforcing the rules of the game rather than making everyone play it in a certain way. As Haier Group founder and CEO Zhang Ruimin put it, “Leaders of other enterprises often define themselves as captains of the ship, but I think I’m more the ship’s architect or designer. That’s different from a captain’s role, in which the route is often fixed and the destination defined.”9

In redesigning managerial authority and hierarchy for the 21st century, leaders must realize that they don’t need to know everything, but only just enough, and they need to consider what their employees want and think is fair in designing structures and systems.