The Hierarchical Erosion Effect: A New Perspective on Perceptual Differences and Business Performance

Department(s)

Graziadio Business School

Document Type

Article

Publication Date

12-1-2019

Keywords

alignment, consensus, Herbert Simon, hierarchical erosion, internal heterogeneity, James March, perception gaps

Abstract

Organizations are coalitions of individuals with heterogeneous interests and perceptions (March and Simon, 1958/1993). We examine an important source of heterogeneity, namely the different perceptions individuals hold across hierarchical levels. We introduce the notion of a hierarchical erosion effect whereby individual perceptions about specific practices become less favourable the lower one goes in the hierarchy. Using data from 4,243 employees across four levels in 38 business units, we provide evidence that this effect exists, controlling for other factors, including the overall favourability of the business unit culture across eight practices. We show how the size of this hierarchical erosion effect varies depending on the nature of the organizational practice being evaluated and the extent to which executives share strategic information widely, and we also show that a lower hierarchical erosion effect is correlated with higher business unit growth. In doing so, we enrich understanding of two aspects of March and Simon's work, their notion of intra-organizational heterogeneity and their distinctive view of the nature of hierarchy.

Publication Title

Journal of Management Studies

ISSN

00222380

E-ISSN

14676486

Volume

56

Issue

8

First Page

1713

Last Page

1747

DOI

10.1111/joms.12443

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