Organizational studies have tended to treat formal organization hierarchy as a top-down policy that is centrally designed and imposed for most organizational members as an aspect of the intraorganizational context. This has obscured two ubiquitous phenomena. First, as an organization grows, it becomes infeasible for the top management to designate reporting relationships for all employees. Instead, the task of managing the formal hierarchy becomes decentralized to middle managers who respectively design the structure of their units. Second, under the anti-bureaucratic zeitgeist, employees actively observe and evaluate the formal structure in which their work relationships are embedded, such that middle managers’ decisions on the unit structure will directly influence the subordinates’ engagement and unit performance. So how does the construction processes of formal organization hierarchy really unfold? In this study, I present a structurational perspective on the intra-organizational dynamics of the formal hierarchy evolution. I theorize about how the practices and decisions of middle managers give rise to the shared knowledge and norms on this task within the organization, which I label as organizational design codes. When managers’ unit structure design deviates from the prescription of organizational design codes contingent on the unit characteristics, unit members will likely deem the management to be less legitimate. As a result, they become less engaged, leading to the unit performance decrease. With fieldwork and quantitative data at a high-growth technology company, I develop an analytical framework to present causal evidence for such normative mechanisms on how the deviation from the organizational design codes leads to lower unit effectiveness and higher voluntary turnover of subordinates. In addition, my analysis shows that middle managers’ deviation decreases with their tenure at the company, while their previous tenure and experience before joining this company attenuate this socialization effect. At the organizational level, results also show that as it grows and matures, the organizational design codes become more institutionalized with less deviation observed. Finally, I also explore the varying effects of different types of deviation (i.e., excessive flatness and excessive tallness). I discuss the implications for the literature on organizational design, practice theory, and organizational learning.

Keywords: Formal hierarchy, middle managers, structuration, organizational design