The Value of Company Structure
Think of career paths blocked by flat management structures where there are only a handful of jobs at the top to go for.
Think of the turf wars that go on between marketing and sales.
Think how hard it is for a supervisor to manage performance of people right across the organisation, all with different skills and competencies, from IT to handling accounts.How challenging it is to understand exactly what their work entails and manage their performance?
What happens when different parts are bolted onto your original role so it becomes impossible to do the job? Suddenly you are supposed to be running a team and preparing weekly reports while you are still expected to do the original job.
What happens when projects are held up for months because the company had to get signatures from one higher-up, followed by their higher-up and so on, a signature-collecting exercise that goes right through the food chain? How do you cope having to apply for your own job after an organisational shake-up?
Every organisation will have a different structure. There is no one size fits all-solution. Anyone wanting to set up a good structure to drive a strategy needs to answer four questions.
1. How many direct reports should any manager have?
The answer will vary from company to company. Joel Barolsky, a principal at management consultancy Beaton says he has seen some instances where a manager might have 30 direct reports, which is way too many.
“How can you possibly get a sense of what’s going on if you have to performance manage 30 people?” asks Barolsky. He has seen others where there are as few as five. That’s not enough. “You need to find that sweet spot in the span of control,” he says.
It all comes down to slotting the right people into the right roles to implement the strategy. According to Barolsky the company first sets out the vision of what it wants to achieve. Then it puts in place its strategy.
Then it works out the structure to enable the strategy. After that it finds the staff. The problem with SMEs, he says, is that it often happens in reverse. They start with staff and work back.
“They ask, who have we got? How do we organise ourselves and by default that gives us a feel for our strategy. First management principles say it should work the other way,” he says.
That might explain why some SMEs struggle with strategy. It also explains why some companies end up having reporting lines and spans of control that are too wide or too narrow.
What makes it more complicated is that in larger organisations people can be reporting to many bosses. There can be a divisional head, the head of the region and the client relations partner, to name a few.
“It’s less significant in the SME market but as the organisation grows the concept of a matrix and multiple reporting lines is much more the norm,” Barolsky says.
According to management consultant Kevin Dwyer from the Change Factory the big problem comes when the manager has to handle direct reports from different competencies.
“When you have competencies that are unalike it’s hard for the manger to be across 12 different briefs,” Dwyer says.
“If the 12 working for me are similar I can cope. But if they are different, like if I had to look after property, finance and accounts receivables, then I might be better having eight because the breadth of what is coming across is too much. There is no point having sales sitting underneath property management because the processes and competencies are just so different and the people you recruit into those roles are different in personality and behavior.”
Douglas Dow teaches management at Melbourne Business School and says different reporting lines are required for staff who show the creativity and initiative that gives the company a strategic edge.
A looser reporting structure gives employees more decision-making power.
“That might mean more decision-making even in areas that are not that critical but which make them feel they are in control and have more say, and they will feel better about their job,” Dow says.
He says that would apply to many sectors, including retail, where the biggest predictor of customer satisfaction is employee satisfaction. Where that is not the case, he says, it requires more efficiency, hence a different reporting structure.
“If you have a business where people hardly ever see the customer and their role is not creative then a different structure would be appropriate,” Dow says.
2. How flat should the structure be?
In an ideal world a flat structure is good because it puts managers closer to the customer, but Barolsky says that could be fraught with problems for managing people’s careers.
“If you have a flat structure with wide spans of control, there are not so many places for people to go,” he says. The competition for the top jobs is extraordinarily intense. You have to look at how people progress in their career and flat structures at some level are more efficient and people in management are closer to the customer. But on the negative side they limit career opportunities.”
Dwyer begs to differ. He says flat structures are not necessarily career limiting. All you have to do, he says, is design a system where people are rewarded for their skills, not necessarily for their authority.
The tricky part is paying people different rates when they are at the same level of authority, all because they have different skills.
“You might have to be courageous in the way you do the remuneration but you can have, for example, three levels and you might have a range of salaries in those levels,” Dwyer says. “I might be a technical expert only at one level but I am paid more than someone in sales and marketing because I have a high level of skills, I just don’t have the high level of authority. What you are doing is mapping the skills rather than the authority. You are paying for the skills as much as you are paying for the authority.”
Dow says the flatness of the structure depends completely on the complexity of the job.
“I can manage 1,000 people if there is a very simple task but with highly complex tasks I can only manage 10,” he says. “If you have simple tasks you can have a broad span of control and not many layers but if it’s fairly complex and diverse you need more layers.”
3. How do we ensure there are no turf wars between the different departments?
Specialists say there is no structural solution here, it’s all about people. Turf wars are all about grand ambition and envy, very human traits.
“I’m not sure structure can deal with it,” says Dow. “It depends on the nature of the people you have to head the units. If you have a person who heads the units who is focused on building his empire as big as he can and being a yes man upwards, no matter what’s going on, he will subvert the organisation no matter what structure you have in place. You have to put more emphasis on the hiring and recruitment process than the structure.”
Barolsky says internal frictions are more about the organisation’s culture. The problem, he says, is that many managers get culture and structure mixed up.
“Some organisations try to fix a cultural problem with a structural solution. They change their structure and they still have a cultural problem.” he says. “Don’t expect that changing structure will fix your culture. They are ignoring the underlying values and behaviour that are driving the politics. Structural change can help disrupt things and bring in a new era. It can affect disruption and change which can lead to cultural improvement. But I often fear that people use it as an excuse not to face the truth and deal with some of the deeper behavioural issues of the leaders and managers.”
That does not necessarily mean ignoring the structure and focusing on the culture. You need to tackle both simultaneously.
4. When decisions are made who needs to approve them?
Dwyer says he sees many organisations which have structured their approval processes in a way that ensures it takes forever to get anything done.
“They are usually built from top down. Quite often you end up with signature-collecting processes,” he says. “So you have someone at supervisor level who wants to do something and they send it up to their manager, who sends it up to another manager. But when you tell them you had three people below you reading this document, what are you adding to it and why does your signature have to be there, they will say because it needs my authority. They usually can’t tell.”
He says a better way to do it is to devolve the decision as low down the food chain as possible. Giving subordinates at the coal face and close to the customer more decision-making power speeds things up and helps implement the strategy.”
“Usually in most organisations I come across it’s shoved up too high and you end up with processes where it took weeks to get the signatures.” Devolution, with appropriate checks and balances for risk, is the way to go. The fundamental starting points are the visions and strategy. The structure comes after that, it is simply the tool to implement it.
But without the structure there can be no strategy. Similarly, a poor structure will result in bad implementation of strategy.
Barolsky sums it up neatly: “The structure should follow strategy, it should be an enabler which helps you achieve your vision.”
