I was recently asked "Is heterarchy the answer to the crisis of hierarchy?" It is a common refrain among advocates of agility. My answer was "It seems like a false dichotomy. Show me any instance of heterarchy, and I will show you the hierarchy that permeates it.” In my experience, an organization is never fully one or the other. Within the same organization, some decisions may be heterarchical while others are hierarchical.
A heterarchy is a system of organization where the elements of the organization are unranked (non-hierarchical) or where they possess the potential to be ranked a number of different ways. It rarely (if ever) is the case that an organization treats all decision-making activities of every kind in the same manner. A firm that decentralizes sales so that everyone can go about sales in whatever way they choose, for example, may not decentralize accounting, which may be centralized in terms of standards everyone must adhere.
In my experience, most people do not realize that different organization structures that appear very different from each other can co-exist. I was even told recently that it's not possible. On the contrary, it is entirely possible. And it is reasonable and advisable to take clear positions regarding which kinds of decisions and decision rights fit different environments or situations. A common mistake is to characterize whole organizations as "centralized," "decentralized," "hierarchical," "heterarchical," etc. One should distinguish structures in terms of the variety of decisions they obtain. Heterarchy and hierarchy are not mutually exclusive and do not necessarily or even usually eliminate each other.
To test the point, let’s compare heterarchy and anarchy. A heterarchy, in theory, is an organizational structure in which each entity shares the same "horizontal" position of power and authority, none being subordinate to another. In a heterarchy, decision-making is mutual and an entity can act in collaboration with any of its surrounding entities without guidance or permission from a master entity. By comparison, in anarchy, each entity has the absolute liberty to act on its own, but there is no organizational structure for making decisions. In other words, heterarchy exhibits structure intentionally whereas anarchy intentionally does not.
But they can co-exist. For example, imagine that you and I were independent contractors who need health insurance that covers risky conditions. We could band together with other like-minded persons in a voluntary association that lets individuals join to buy health insurance as a group to cover high risks or even pre-existing conditions. We agree on the spectrum of options and allow each person to make his or her own decisions within an agreed structure that we jointly create, i.e. heterarchy. At the same time, this same collective may exhibit anarchy in terms of our respective positions on religion, a domain that is left unstructured intentionally.
Just as heterarchy and anarchy can co-exist with each pertaining to different categories of decisions within the same group, heterarchy and hierarchy can co-exist. Consider a corporation that leverages agile project teams. Those project teams execute specified missions that may be designed or rehearsed, or a team may just as well be set loose in an area of responsibility with specific rules for exploration and exploitation. An agile project team may execute a mission using a completely flat, bottom-up, seemingly heterarchical approach in order to be able to adjust rapidly to emerging conditions on the ground. While they are agile on the ground, they may be limited in their ability to bring in the capabilities of their larger organizational context, i.e. limited in the ability to employ resources from corporate functions unless that was arranged beforehand. Conversely, the organization as a whole can't be as agile as the team. For functions where the context or activities are more predictable or well known, more hierarchical constructs are utilized to give access to greater predictability, efficiency, and control. Hence, a heterarchical project team may be subsumed to a hierarchical parent organization. This is perfectly legitimate.
Organizations are mental constructs as much as they are anything else. Though an organization may be characterized for having a predominant type of structure, each organization may be a myriad of different structures overlaid one atop another. The organization is composed of decision rights that are allocated, patterns in which the parts of the organization interact, and ways information is disseminated within the organization. As the environment becomes more complex, the need for agility increases, and both the types of decisions and types of decision makers evolve (per figure 1). This creates different structure, not less structure. The relevant question is can/does the organization adapt its approach in response to threats and opportunities, and can it adapt to the approaches it needs with efficiency and timeliness?
What is sought is a capability to change across the physical, information, cognitive, and social domains, and to achieve success in the face of deep uncertainty and highly dynamic conditions (per figure 2). Such dynamic capabilities require standards, and it is standards that allow order to emerge even when organization does not (Schlichter, 2002).
For example, everyone connected to the Internet is using rigid standards or rules that dictate how information is communicated, i.e. the Internet protocol. You can't be connected to the Internet without those rules, and it is precisely because those rules are standardized that all the other flexibility, freedom, and agility we associate with the Internet is possible. Ironically and non-intuitively, it is structure that enables agility.