The issue of a flat versus a hierarchical corporation or business is controversial. On one hand eliminating ranks and grades to classify employees encourages collegiality and cooperation, on the other hand it reduces career incentives and accountability. I feel that a hierarchical structure is applicable in more situations than a flat one. However, we need to look at both sides of the issue here.
Firstly, a hierarchical organization is more capable of rewarding employees with regard to their experience and expertise. In several corporations the nature of work is such that more senior people gain more knowledge through experience and become more capable in handling various problems and issues. Expertise and experience go hand in hand. An organization typically rewards such people with a higher designation and better paychecks as recognition of their expertise. An organizations promotion policy is an example. Rewarding an expert becomes a more complex problem in flat organizational structure and could lead to a lot of experts leaving as their seniority and work is not recognized.
Secondly, a reporting hierarchy in an organization improves accountability. If ones work is monitored and reviewed by a person of higher rank, then one is naturally more responsible towards the desired goals. For example, the number of bugs detected in the code of each Software Engineer in a team is monitored by the project manager. The manager then appraises each engineer on the basis of the quality of code developed. The project manager should naturally have more power, or a higher rank in the organization. It is not possible to implement this in a flat structure.
Thirdly, I agree that a flat structure encourages collegiality and cooperation among employees. But I think that these traits are desirable only to certain types of corporations. For example, in a research facility, it is best if all scientists cooperate and share their knowledge and research with each other, and achieve the objectives fastest. In general however, a competitive environment serves most organizations better. For example, in a car design firm it is best to have a hierarchy of engineers based on the degree of their expertise. Competition will motivate people to learn faster and contribute more.
Finally, I conclude that in general a hierarchical structure is more aligned to an organization’s objectives, than a flat one. However, both have their pros and cons. The structure should best suit the nature of the organization and organizational objectives.