In 2008, companies averaged 2.9 general managers, compared to 1.6 in 1986, whereas the average number of functional managers reporting directly to the CEO increased much more dramatically, from 3.1 in the late 1980s to 6.7 in the mid-2000s. And as functional managers have risen in power, general managers may be losing some of theirs.
A new working paper, Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management, explores several factors that have led CEOs to depend more directly on functional experts than ever before-coordinating all the top minds in the top office.

“CEOs are spending more and more time with their direct reports, in larger and longer meetings,” says Julie M. Wulf, an associate professor of strategy at Harvard Business School who co-wrote the paper with Maria Guadalupe of Columbia Business School and Hongyi Li of the MIT Sloan School.

It seems the main factors driving the C-suite sea change are an overall increase in IT investments and an overall decrease in firm diversification.

Firm diversification

Studies show that an increase in the number of C-level functional product managers was directly related to a firm’s decision to become less diversified. The paper notes that many US firms have narrowed the scope of their operations since the 1980s, in efforts to compete better in the global economy, winnowing their product portfolio and focusing on a particular customer base. If a company sells both discount consumer electronics and high-end data storage systems, for example, it makes sense for each business unit to have its own marketing chief, housed in that unit. But if the firm decides to focus solely on the high-end corporate customers, the CEO may choose to move the marketing heads to the C-suite, along with other functional managers, in hopes that they’ll work as a team and discover effective ways to cooperate better.

“By narrowing their focus in terms of their business portfolio, companies increase the potential for synergies,” Wulf says. “If you’re in a corporation with diversified businesses, there’s no reason to have a chief marketing officer because there’s no single company brand to manage. But in companies that have more related businesses, it makes sense to have these positions toward the top with the objective of centralizing the marketing activities across businesses.”

Wulf hastens to say that the research is by no means a death knell for general managers, but their jobs may change. At the least, they will likely find themselves in more meetings than ever before. “The general managers are put in a position to coordinate more with these functional positions, which historically they maybe haven’t had to do,” she says.

Key points for SME’s?

Less diversification and more focus on being “world’s best at…”
Working synchronistical across all the key areas of managing your business – marketing, sales, customer relations, operations to create a cohesive business.

This article reproduced from an article written by Carmen Nobel senior editor of HBS Working Knowledge