Achieving Business Success
By Robert L. Bailey
Many American companies remind me of an old childhood game that we sometimes played on cold winter days in a one-room Kansas school. The first person whispered a story a few sentences in length to the next child in a circle. The second whispered it to the third, the third to the fourth, etc. The last person in the circle repeated aloud the story that he or she had heard, and the group laughed. (OK, we were easy to entertain in those days. After all, there were no television sets or computer games). The story had generally changed enough that it had become nonsensical.
The game was called "Telephone" or "Gossip". The modern day equivalent in American businesses is called span of control.
Consistently I see companies with spans of control that are too narrow, some even with one-on-one reporting arrangements. When one person has one direct report (or even two or three direct reports), generally someone is unnecessary. Narrow spans of control create multiple layers of management and costly bureaucratic overhead that makes communication, both upward and downward, nearly impossible. The business has become overweight, bureaucratic, and unhealthy.
Giant corporations in America often have 15 to 20 layers of management. Mid-sized companies sometimes have 10 or 12. This is too many for effective communication. And this arrangement adds too much expense and makes decision making too slow. Efficient, nimble competitors will run circles around the stodgy organization burdened by too many layers of management.
It is better to have a span of control that is too wide than to have too many layers of management. Those of us in management positions may not like to hear this, but management is an overhead expense. Too many companies spend an inordinate number of payroll dollars at the top of the management pyramid and are too quick to cut payroll at the bottom of the pyramid – the people on the firing line who are serving customers.
In my former company our policy was never to have more than five layers, and in many departments there were fewer. Even very large companies, significantly larger than ours, can operate with no more than five layers. Let's do the math. If the span of control is capped at ten, a five-layer system can accommodate more than 11,000 employees. It may be advisable to have fewer direct reports at the top of the management pyramid and more direct reports at the bottom of the pyramid, but in any event five layers should be a maximum for most organizations.
In smaller organizations, with ten to fifty employees, two or three layers would be more appropriate.
Every management layer adds another communication hurdle. Like the childhood game I described, information is screened and distorted a number of times. Ultimately the boss gets inaccurate information or knows precisely what those at the lower levels want the boss to know.
Great ideas that would cut expense or improve service – from those best able to generate ideas, the people actually doing the work – never make it through the system. Someone someplace in the management structure lets it die. Inaction dries up the source of other great ideas. Employees will say, "You didn't take action on my last idea. Why should I submit others?" If a good idea actually survives the multiple layers, it isn't unusual for others to take credit. Surveys have shown that as many as 70% of employees say their managers or supervisors have taken credit for their ideas. In the future these folks likely will be unwilling to make other suggestions that will benefit the organization.
Multiple management layers slow down the decision-making process. The successful company of the future must be nimble, adjusting quickly to economic or competitive developments. And when the decision is made, it may be made on incomplete information because all the facts surrounding the issue didn't make it through the management maze.
My arbitrary five-layer limit isn't a perfect fix, but with as few layers as possible, it's more likely that information on new products, new services, competitive challenges, and market demands will reach the decision-making level.
Then there's the issue of cost. Some companies have two-thirds of their payroll allocated to managerial level employees and only one-third to those who are actually serving customers. Something is wrong with this picture.
The successful organization of the future must be lean, relatively flat, have excellent communications upward and downward, and must be responsive to changing conditions. This is not possible in a bloated bureaucratic organization with too many layers of management. The successful company must have a worthwhile mission, and the team must be interested in helping achieve that mission. They must be excited about the journey. Everybody must be willing to pull on the same rope and in the same direction.
This is accomplished through leadership. Every dimension of leadership requires good, thorough, effective, ongoing communication. But you can be sure that communication is inherently weakened when information is passed through multiple hands.