An Overview of Top-Down vs Bottom-Up
There is no business management approach that fits all. When you constantly miss your strategic initiatives, then you ought to take a good look at your approach. Adopting more top-down or bottom-up initiatives could do wonders for your strategy.
But you have to understand the current state of your business and what it’s missing. It’s like a gap analysis, but for your business structure.
Complex problems that require complex solutions present themselves to all living businesses. The emergence of a new competitor or changes in the market, like a worldwide pandemic. Developing a coherent strategy is a necessity if you want to keep up with the changes and prosper.
Not all companies benefit from the same approach, nor do they benefit to the same degree. Knowing which are the right circumstances to apply this approach can make or break a company.
What is Strategy?
Strategy is your solution to a specific problem.
It’s your way of bridging the gap between where you are right now and where you want to be tomorrow. There are good strategies and bad strategies. Only the first kind is useful, so that’s what we explore.
The first order of business is diagnosing this great challenge you face. This is at the core of strategy development. Reality is complex and messy. Simplifying reality and identifying the challenge’s crucial aspects leads to greater insight. This dictates the rest of your strategy.
The second order of business is the design of your roadmap. How are you approaching the solution to your challenge? This is the approach that guides the design of your strategic plan and leads to action.
The third order of business is the execution of your strategy. A successful execution aligns all the actions and decisions of your people with your plan. It includes measuring what matters, reviewing often and taking action on any insight that derives from your reports.
Though not exhaustive, these are the principles every successful strategic plan follows.
Organizational Design: Why it matters
Conventional wisdom has it that strategy formulation should precede the organizational design of a company.
The structure of the company affects the communication patterns within it. Thus, ideally, the optimal organizational design serves the company’s vision and goals.
There is no universal optimal design because every company has its own vision, goals, and assets.
Each organizational strategy offers some benefits by making certain things easier, but also puts some drawbacks on the table that make other things harder.
The choice of strategy reflects the company’s priorities.
Here we will discuss two specific approaches to strategic management and when it’s best to utilize each of them: the top-down approach and the bottom-up approach.
These refer to the information flow within an organization's hierarchical system, how an organization processes information and organizes knowledge.
What is top-down approach?
Companies that adopt a top-down management approach are essentially choosing an autocratic leadership model.
\Only top leadership is concerned with decision-making with little to no input or feedback from the employees. Then the decisions are communicated downwards.
Advantages of top-down approach
- Faster decision making
- Employees focus more
- Easier to align strategy
The first impact of a top-down strategy is on decision-making. When the head of the organization is responsible for every important decision, it shortens the time between diagnosing the challenge and taking effective action.
The proficiency of the decision-maker dissolves the need for feedback and input from the rest of the team and saves time (and money) presenting the strategy ready for execution.
The second impact is on employee productivity. Freeing employees of the responsibility of decision-making allows them to focus on execution. The stress of choosing the right actions doesn’t burden them.
They are only concerned with the implementation of the plan. Arguably, some believe this is the key to increasing productivity.
The third impact and most important is on strategy alignment. When under autocratic leadership a company's strategy is better understood, as all employees know where they sit in the company and what their role is.
This makes operating in alignment with the company strategy much more straightforward in comparison to a bottom-up approach.
When to use top-down approach?
You face strong time constraints.
In states of emergency or impossible deadlines, democracy flies out of the window. There is no time for a surgeon to debate their decision or enforce instructions. When inaction is worse than a bad decision, justifying the plan isn’t relevant. Execution becomes a top priority.
You need precise execution.
Perfect execution of a mediocre decision is better than mediocre execution of a perfect decision. Sometimes making a decision, even if it’s not the best, is better than stalling. Obedience then becomes a necessity. That’s why armies have such a strict hierarchy.
Your leader is an expert.
Autocratic leadership is also extremely effective when the top person in charge, e.g. the team leader, has overwhelmingly higher expertise than the rest of the people.
The owner of a small business might have years of experience in the market. He knows the craft and has seen what works and what doesn’t.
Disadvantages of top-down approach?
Nobody likes a jerk. Exercising authority doesn’t have to be demeaning. Don’t confuse confidence with arrogance. Rudeness, entitlement, and insults are the fastest way to a destructive culture.
- Do have empathy. Be strict, but not condemning.
- Don’t bully or judge people.
When questioning decisions isn’t a choice, the company relies solely on the instructions of the top people in charge. But what happens if they’re wrong? Even experienced people make mistakes.
- Do question yourself. Ask for help, if needed.
- Don’t allow past experiences to limit your view. New circumstances or unforeseen changes demand unbiased vision.
Emergencies don’t last forever. Find the time to communicate the vision and the reasoning behind the plan. Sometimes people just need some details of the underlying intentions to understand where they fit in it.
- Do be fair. Unfounded favoritism cultivates disloyalty.
- Don’t ignore concerns, especially recurrent ones. Face them bravely and justly.
Constantly dismissing feedback leads to disconnection from reality. The plan might be genius, but if the implementation is impossible then it is worthless.
- Do design the system properly i.e. align incentives, offer proper training and support, be flexible if it doesn’t work out.
- Don’t disconnect from the front line. Construct a clear image of what works and what doesn’t.
Absence of delegation
The head of an organization should identify the big picture, set the goals and expectations.
When forming the guiding policy and the coherent action, the responsibility of the top people in charge is to keep everything aligned with the vision. It’s not to decide on every painstaking detail of it.
- Do keep the principles clear. Allow conversations around tactics, but not principles.
- Don’t shy away from delegation, when it needs to be organized.
What is bottom-up approach?
Companies that adopt a bottom-up management approach are essentially choosing a more horizontal leadership model. Employees are much more involved in decision making and feedback is constantly communicated upwards.
Advantages of bottom-up approach
- Process Optimization
- Growth culture
- Higher adaptability
The first impact of a bottom-up approach is on process optimization. It takes advantage of the specialized skills of the front-line employees. Participating in the decision-making process allows them to bring to the table their unique perspective and expertise.
Responsiveness to customers improves and productivity rises. The processes are optimized since experimentation fosters.
The second impact is on the culture. People feel heard. They feel like they’re contributing and they’re empowered to take initiatives and develop solutions. The organization fosters a growth culture and becomes transparent. New talents are attracted that want to grow and create.
The third impact is on your adaptability. You get direct feedback from the front line and educate your decision-makers on the changes in the environment ( i.e. market, competitors, etc).
You get a clear and accurate picture of the current situation to face it properly. So make sure you have clean reports that measure what matters most.
When to use bottom-up approach?
You are in need of creativity.
When creativity and new ideas are a priority, freedom, and initiatives are critical. Tapping into individual knowledge and unique perspectives brings an abundance of ideas and material to choose from.
Each little contribution may lead to an incredible insight.
You have a high turnover rate.
An unmistakable sign of a hostile working environment is the constant need for new staff. If you are unable to find “loyal” and “hardworking” employees, maybe it’s not the fault of the new recruits. Impossible demands, unfair treatment, and conscious exploitation are not fertile grounds for loyalty and an engaged workforce.
If it is not occurring in an isolated position, then the real issue is ignored. People are trying to do their job as much as they’re trying to protect themselves. High performance and hard pressing deadlines are lagging measures of a culture’s hospitality (or toxicity).
You have many unsatisfied customers.
Consistent complaints and lack of recurring customers are strong evidence of bad customer service. Again, if you can’t isolate the problem to an individual, then the decay is deeper.
The unsatisfied customers are merely the symptom of the disease. Shady tactics tend to yield decent short-term earnings but are extremely deadly in the long run.
Disadvantages of bottom-up approach
When the flow of information is constant and unstructured, it’s impossible to sort through.
- Do standardize a way of giving upwards feedback with a system that promotes actionable insights.
- Don’t allow unstructured, vague, and purposeless information to reach you.
A bottom-up approach processes incoming data from the environment and creates simple systems. Combining those systems for actionable output gives rise to complexity.
- Do establish policies and general rules. But let some exceptions out of them. They can be tackled without adding to the complexity.
- Don’t try to use it to scale. Scaling needs simplicity.
Poor Individual Performance
The truth is horizontal organizations rely heavily on having capable and motivated individuals on the working level.
- Do listen to those who care and support them. Offer training and guidance.
- Don’t abstain from putting serious effort into hiring the right people. They can be the best choice of your life and just as easily your worst nightmare.
Optimizing processes is enough for small businesses to thrive, sometimes. But for bigger companies it is only half the answer.
- Do have people free from today’s needs and working on deeper disciplines that will also serve the future.
- Don’t dismiss changes that aim at tomorrow’s customers.
Top-Down vs Bottom-Up Example
Impose a rigid hierarchy and you destroy your culture. Focus only on optimizing processes and you’ll never achieve competitive breakthroughs.
Like everything in life, applying a single approach is rarely the best option. Optimal structure and management are somewhere in the middle.
Maybe your business needs a decisive leader who knows the market and the craft. Maybe you need to give your employees freedom, micromanage them less and reward them more.
In the beginning, we said strategy determines the business’s structure. In all truthfulness that is an old and not outdated notion.
Reality has this to be more complex. The process of building the optimal organizational structure with its decision systems and staff composition is not linear.
Strategy is iterative.
It is constantly reassessed and the organizational structure can be challenged. The structure is not set in stone; it is temporary and needs to be ready to pivot in order to quickly address environmental changes and new needs.
People need to know what matters.
The company constantly communicates it, voluntarily or not. Who are promoted as role models in your business? What is being measured and what is being rewarded? Is the flow of information one-directional? Which direction does it favor and how does that impact the culture?
Is there a sense of membership, do the leaders inspire and empower or only order around? What are people training at? What incentives are there to participate?
These questions confront not only the structure but the overarching strategy of an organization.
Top-Down vs Bottom-Up Summary
Changing your business structure is tough, but sometimes it’s a requirement for the success of your strategy. But choosing the right approach is not an easy task.
Top-Down vs Bottom-up key takeaways from this article:
- Successful strategies have identified the correct problem, include a well-structured plan and align everyone’s actions with that plan.
- You need a more top-down approach when you face strict time constraints or have an expert leader in their field.
- You need a more bottom-up approach when you need more creativity and have few satisfied employees and customers.
- Each approach has its advantages and disadvantages.