Managers matter

In a post in the Harvard Business Review, Gary Hamel and Michele Zanini purported that “excess management is costing the U.S $3 Trillion per year.” They noted that there was one manager for every 4.7 employees based on the occupational data provided by the U.S. Bureau of Labor Statistics. They recommended reducing that economic loss by doubling the manager to employee ratio to 1:10 and redeploying half the current managers to perform other value-add tasks.

I concur with establishing reasonable span of control, but wonder if implementing their recommendation without consideration of all other related factors would leave us penny wise but pound foolish. I have not witnessed span of control as low as those shared by Hamel and Zanini, which they computed as an average based on the data of American workforce in 2014. Although there may be some organizations and industries with tall organizational hierarchies, the majority have a far higher ratio than one manager for less than five people, and that span of control continues to increase, with norms for CEO’s noted to be already at 1:10.

Furthermore, there is probably a greater variance in the span of control within organizations as compared to across organizations; there may be some departments within an organization that are closer to the proposed ratio than others. For example, in the healthcare sector, the clinical departments often have unsustainable and impractical spans of controls with one manager for approximately 77 employees, if not more. In my work with hospitals over the last five years, I have witnessed some spans of control to extend up to 1:120. At the same time, as an Organization Development professional in those hospitals, I have often worked in departments with 1:5 ratio or less. These discrepant variances within organizations and across industries challenge the use of averages, such as 1:4.7, to accurately discuss span of control issues for organizations and consequently, the estimated impact on economic performance losses at a national level.

Nevertheless, 23.8 million managers constitute a significant number of administrators that receive 30% of total compensation; I agree with Hamel and Zanini about the potential benefits of reducing that number for an enhanced economic performance. But before we heed that advice, rallying up to trim some of the management layers or fire all the managers, it is worthwhile to review the role and purpose of management. In fact, there are significant risks and minimal chances of success if organizations were to focus exclusively on just this factor to accomplish administrative cost reductions, even if this factor appears to offer a compelling case for consideration.

Among its myriad duties, management teams are fundamentally responsible for coordinating work activities for employees that would generate the best outcomes for the organization. They do so by focusing on their direct reports, which constitutes their span of control. So a manager with only five direct reports may have a significantly less workload as compared to a manager with ten direct reports, provided direct reports engage in same work in both cases. Also, the workload and consequently, manager effectiveness can be expected to vary for a manager responsible for five frontline employees versus five supervisors. When considering the effectiveness of managers, it is important not just to consider the raw span of control but also the roles and responsibilities of one’s direct reports, which contributes to performance expectations of the relevant managers.

Also, a span of control or hierarchy is only one of the three ways organizational structure facilitates the optimal division of labor; let’s also assess the level and effectiveness of standardization and informal communication in an organization. Together these three factors help coordinate work activities for all its employees, and we should assess all three to determine the return value of letting go some managers or management levels.

As such, in organizations with high performing self-directed teams operating using standardized processes and shared mental models, a wider span of control where one manager was responsible for many employees, could be effective.

Decision makers may also want to evaluate other three elements of organizational structure beside span of control, that include centralization (extent to which formal decision making is controlled by a small group of people), formalization (extent to which strict rules and procedures standardize behaviour), and departmentalization (the way in which employees and their activities get grouped together). Organizations with several management layers (tall hierarchies) and small manager to employee ratios ( a narrow span of control) may not be leveraging the benefits of all other structural elements that contribute to a high-performing organizational design.

Unlike the claim in Hamel and Zanini’s article, one can’t simply assume that wider span of control coexists with decentralized operations and non-bureaucratic functioning. The ideal span of control will depend on many environmental factors. Organizations that operate in a dynamic, complex, diverse, and hostile environments will most likely require greater management support to buffer the challenges posed by the environment.

Middle managers are essential to organizational sensemaking, executing organizational strategy, implementing radical change, and helping the organization innovate.

The empowerment fallacy inherent in the romantic notion of delayering organizations by removing middle managers to increase economic productivity has been challenged across a few countries. Although there are some democratic Mavericks, most organizations have struggled to implement a flat organizational hierarchy where employees took accountability for their actions and didn’t emphasize their needs over organizational needs. Moreover, flat organizational hierarchies can slow down decision making despite its theoretical privileges to not go through a chain of command.

In conclusion, I recommend that decision makers adopt a systems’ perspective to evaluate if their organization is guilty of lowering economic performance through unwarranted small spans of control and narrow hierarchies with multiple management layers. Consider adopting Hamel and Zanini’s advice to double the number of direct reports if you find an overabundance of spans of control around 1:4.7 in your organization, despite working in a stable environment. It’s equally important to acknowledge that a reasonable span of control will contribute to high economic performance only when it considers all other coordinating mechanisms and elements of the organizational structure.

For the researchers and practitioners in management, let’s articulate the criteria to help organizations identify if they have “excess” management. We can positively contribute to improving economic performance by facilitating holistic evaluations of organizational effectiveness using all elements of an organization’s structure, and not just the span of control. After all, managers matter. A lot.