Structure for success: How to get your organization out of the mud

Can your organization make better decisions, faster? You bet.

Place yourself in this scenario: you received an exciting, new assignment to lead a project team tasked with driving a key initiative forward. You get to work right away, completing initial kickoff meetings with team members and assigning tasks to be completed over the next few weeks.

The first few weeks pass, and your team seems to be on track, achieving initial milestones and following course. But all of a sudden, you run into a critical breaking point. Conversations progress, but you can't seem to make any progress. People are tied up with other commitments and it seems that almost every conversation now requires multiple touch points to ensure full "alignment". A bit more time passes and you scrape by to make decisions and skeptically move forward. While you're happy to be able to move onto the next milestone, you're left wondering, "does this have to be so difficult?"

Sound familiar? If you're nodding your head yes, rest assured that your situation isn't unique. Complex organizations exist everywhere, and even organizations with the best intentions can find themselves with too many layers between key decision makers and supporting team members. Such a distance can add unnecessary complications to decisions that need to be finalized at a faster pace.

So, the million dollar question remains – how can you make your organization leaner and allow for faster decisions, increased transparency, reduced costs and improved communication?

Making Sense of an Org Chart

One methodology often used to formalize such organizational analysis is ‘spans and layers’. In a nutshell, span refers to the number of direct reports of a given employee and layer refers to the number of different levels of reporting in the organization, from the CEO down to the “shop floor”. So what’s a “normal” or “best practice” average span of control? What’s the recommended number of layers in an organization? This is where things get a bit tricky – let’s address each one.

Spans

Traditionally, eight was viewed as the gold standard span to shoot for – no more, no less[2]. However, in Bain & Company’s database of 125 global companies[3], some of the most successful firms had average spans as high as 15. Given Bain’s findings, one may thus jump to the conclusion that “flatter is better”. While we find this to be true empirically (especially with more established, slower-moving enterprises), the answer is not so black-and-white.

To determine an employee’s ideal span of control (or more likely, a range of acceptable spans), ask yourself a few questions: Do direct reports perform similar, standardized functions? Are the projects they work on mature and well understood or conceptual and constantly changing? Are they physically in the same location or dispersed geographically?

These factors are incredibly important. A contact center supervisor, for example, oversees employees that sit together and answer the phone using a detailed SOP every time a customer calls. On the contrary, a marketing director’s team works on various conceptual projects at a time, with a strong possibility of travel across the country, or even internationally. It’s not surprising that the contact center manager could oversee a larger team, say 15-20 customer service reps, while the marketing director would have a tough time with anything more than a handful of direct reports.

Layers

Similarly to spans, there isn’t a quick answer or rule of thumb for determining the appropriate levels of management. Visually, it’s easy to see that layers naturally are a product of spans and the organization’s overall size -- it would be impossible to grow as company while keeping a consistent average span without expanding layers.

A common prescription is that the ratio of spans to layers should be greater than one to one -- in other words, the organization should be flatter than it is tall. In Bain’s database, the average large company had between eight and nine layers of management, while “best-in-class” firms are flatter, with six to seven layers. While such designations merely serve as useful context, it is fair to say that successful companies tend to be flatter and avoid overly bureaucratic organizational structures when compared to their “average” counterparts.

Practical Application

The spans and layers methodology provides great insight into the skeletal make-up of an organization, but fails to capture the qualitative aspects of how an organization should be assembled (e.g., functional diversity, level of standardization, project variety, geographic dispersion). As such, when your organization is struggling from a decision-making or information-sharing perspective, the answer is not simply to chop heads or cut middle management – the problem extends much further. Organizations must dig deep to truly assess and mitigate the sources of a dysfunctional structure.

In one of the most high profile case studies, Target CEO Brian Cornell cited organizational complexity as a clear contributor to Target's growth struggles over the past few years, specifically at the corporate level, stating “simplification, cutting complexity at headquarters will make us more competitive” and highlighting the fact that Target needed to “rid the organization of undue complexity”[4]. While Target's problems were certainly exacerbated by strategic decisions that didn’t pay off (e.g., Target Canada), it is quite clear that improving upon a bloated organizational structure is a core initiative that Cornell is betting on.

More recently, in a presentation to Wall Street investors, new McDonald’s CEO Steve Easterbrook outlined key future initiatives meant to turn around dismal financial results. In particular, Easterbrook highlighted strong concerns with the current organizational structure, stating “the structures are cumbersome, decision-making too slow”[5]. As a result, McDonald's will reorganize into four segments -- the U.S., international, high-growth markets and foundational markets. In another change, each segment will be overseen by one division president, and according to Easterbrook, the "speed of knowledge transfer" amongst division heads will improve as a result of the new segment structure.

From our perspective, both Target and McDonald’s are taking big steps in the right direction to address their recent woes. And while these two examples are huge, established corporations, other companies can learn from their aggressive efforts. Furthermore, being organizationally bloated is not just found in the blue-chips -- small businesses and those in the middle market should protect themselves from these decision-slowing, information-restricting symptoms.

As we re-examine the situation presented at the start, if the cumbersome organizational structure and slow speed of decision making were not improved, a dangerous culture could persist where people believe that nothing can get done, or even worse, people expect projects to fail at kickoff given the underlying support system.

Ultimately, in increasingly competitive landscapes, where consistent variability across the entire value chain can pose a risk to productivity and profitability, adopting the right organizational structure can help boost productivity via faster decisions, increased transparency and improved communication. While organizational structure is just one lever of change, the long-term impact is arguably the most profound, leaving your organization well-positioned to achieve future goals.

[1] Another formula that can be used is [N+(S-C)]/S, where N = the number of non-supervisor (i.e., “shop floor”) employees, S = the number of supervisor employees (i.e., have at least one direct report) and C = number of Level 1 employees (usually = 1 if there is one CEO) [2] While there are multiple origins for this number, one common explanation is that a manager can reasonably devote 20% of his/her time to coaching and mentoring, and that each direct report would require about one hour of mentorship week