In Agile Methodology, is a Scrum Master position higher than a Product Owner, in terms of organizational hierarchy?
The Scrum framework requires active collaboration between Scrum roles, and between the business (or customer) and the Scrum team. Hierarchical relationships within the Scrum team are antithetical to effective implementation of the Scrum framework, but Scrum itself is agnostic about organizational roles and relationships that exist outside of the framework.
Within the team, each role has responsibilities that are dictated by the framework. This is not intended to be hierarchical, but rather serves as a clear separation of duties to ensure smooth functioning of the process.
Think Responsibilities, Not Authority
Within the Scrum framework, each role has a scope of responsibility that must be respected by the other roles, but the roles themselves aren't hierarchical. Instead, the roles collaborate in the implementation of the Scrum process.
For example, the Product Owner is the final arbiter of the contents and priorities of Product Backlog items. While other members of the organization or Scrum team may provide input, this responsibility ultimately rests solely with the Product Owner.
Likewise, the Scrum Master is the final arbiter of the Scrum process. As the process referee, the Scrum Master has the final responsibility to ensure that the team's processes are communicated clearly, that essential Scrum ceremonies are held properly, and that Scrum artifacts like the Product Backlog and Sprint Backlog are properly implemented.
When people talk about a Scrum team being cross-functional, this doesn't mean just technical skills; it also means that the team must contain all the necessary leadership skills necessary to deliver a working product. This requires active cooperation among the roles (think "zone defense") rather than a formal reporting relationship or command-and-control management.
Money Equals Power
From a purely pragmatic standpoint, the Product Owner manages the allocation of project resources through the Product Backlog. As a result, the Product Owner is often organizationally higher on the food chain than other team members because he or she is tasked with controlling the budget and held responsible for product delivery. However, this is a political side-effect, rather than a tenet of Scrum.
Within the Scrum framework, the Product Owner is a partner with specific responsibilities, and is not senior to anyone else within the Scrum team. The Product Owner may not infringe on the Scrum Master or Developer roles and responsibilities within the process.
From outside the Scrum team, control of resource allocation may lead to the impression that the Scrum team reports to the Product Owner. This is not true, and it is the Scrum Master's job to educate the team and the organization about how Scrum actually works.
Scrum cannot work without active cooperation between all three Scrum roles. The roles should be considered peers in order to adhere to the principles behind the Agile Manifesto.