How do small and medium-size enterprises (SMEs) organize to be resilient to an increasing number of shocks from the external environment? One (“localist”) view suggests flatter structures are better for the average firm in bad times, while another (“centralist”) advocates that hierarchical firms manage crises better. We argue that hierarchy is an important (and overlooked) managerial tool for SMEs facing a crisis, because it shapes managerial attention and coordination, which are crucial resources for spotting and seizing opportunities. Our main hypothesis is that SMEs with taller hierarchies have more resilient revenue growth immediately after COVID-19. The mechanism we argue for is that a taller structure allows SME leaders to focus on opportunities for strategic renewal, while shared information and situational awareness enable them to reposition the firm swiftly. We find support for our main hypothesis in a panel study of 8,996 Danish SMEs. We also find associational support in a cross-sectional mechanism test of 915 SMEs from the population that responded to a survey in the spring of 2020. Our paper contributes to the centralist vs. localist debate with preliminary evidence of an association between hierarchy and SME performance following an exogenous shock (the COVID-19 lock-down).
