Government is a classic example of a system where most members of the system can be good and efficient, yet the system as a whole can be clogged up by even a few crappy folks.
It's like traffic with limited lanes. Decisions have to go thru certain chokes, and if there's a slow driver (inefficient bureaucrat) or a traffic jam (overworked), or a crash (time critical emergency), or a malicious troll (a troll) then things stop or slow down.
Like a big road network, you get enough of these and flow becomes jerky, stop-start, non-linear, and efficiency drops. Meanwhile, nearly all drivers will report that they are good, rule abiding drivers (minus speeding (the occasional minor rule circumvention), which actually helps flow).
Sure, groups become more valuable the bigger they get, cause of the combinatorial link complexity, but they also get harder to get anything done in cause you've got to check all those links to make sure actions will be accepted.
Hierarchies just map this exponential complexity into something closer to an O(log(n)) tree with the caveat that you get flow constrictions as a tradeoff for not having to talk to everyone.