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(Celia Krampien. For the Globe and Mail)
(Celia Krampien. For the Globe and Mail)

monday morning manager

How to find the right number of layers for your company Add to ...

As Toronto consultant Ron Capelle began to work with companies to improve their performance, he found the problems often resulted from poor organizational design. But most of us are oblivious to organizational design. “It tends not to be on the agenda,” he said in an interview.

A psychologist before he shifted to management consulting, Mr. Capelle’s approach echoes ideas first promoted by the late management consultant Elliott Jaques, the Toronto-born psychiatrist who identified the idea of a “midlife crisis” before abandoning the field to devote himself to studying organizational design. The key is the management-subordinate relationship, and how best to align the organization to make those relationships productive.

In most companies, the number of layers is idiosyncratic – a product of fickle human nature and history. To Mr. Capelle, it’s a science. The number of layers should reflect the size and scope of the company, but also the information-processing requirements of the job and the time span needed to do the work.

Essentially, you must determine the complexity of a job by estimating the longest amount of time a task for that person might require to be completed. For some jobs, that might be a few months, or years, while at the top – where CEOs may be planning a few decades out – that time span might stretch to 50 years. That leads to as many as eight strata for a major multinational, with smaller companies able to organize themselves in as few as these three:

Stratum one

These jobs have a time span of three months for the longest tasks. Retail customer service is an example; it’s important work, but governed by procedures and concrete goals with short time frames.

Stratum two

This encompasses professional work or the first level of management, with time spans of three to 12 months. The duties involve accumulating data, diagnosis, taking action, and being accountable for results that fit within a one-year time frame.

Stratum three

This covers more senior managers, who develop solutions that at the longest may take one to two years to bear fruit.

Using sales as an example, Mr. Capelle says that at the first stratum, the employee focuses on transactional sales with short time frames; at the second, we might find professional salespeople who have to build deeper relationships to win contracts; and at the third level, a manager might oversee a territory where those professional salespeople operate. Such territorial managers are thinking of developing their territory over the next 18 months, how to support their salespeople, and ways to bring on stream new products that are being developed.

A mom-and pop store might have just those three levels, or perhaps a fourth, which covers two to five years. Successively, the higher strata are: five, for five to 10 years; six, covering 10 to 20 years; seven, handling 20 to 50 years; and very rarely, an eighth, where decisions look beyond 50 years. A Canadian bank might need seven strata, with a lot of businesses settling at five.

Every employee should have a manager who is exactly one stratum above him in complexity of work and capacity to operate at that level. One mistake is compression, where the manager and direct report are operating at the same level. In all likelihood, the employee will be micromanaged (and be dissatisfied) because the manager’s instinct or capacity is to be doing the same kind of work. A gap occurs when the manager is two or more levels above the direct report.

“In a gap situation, the manager will be complaining he is being pulled into the weeds or the employee has no initiative. It seems a people issue but it’s not. It’s structural,” he says. The manager should be operating fully at the higher level he is assigned to and prepared to handle.

Mr. Capelle finds the structure is correct about 50 per cent of the time in organizations. About 40 per cent of the time, compression occurs and 10 per cent involve a gap. “It’s wrong 50 per cent of the time. So there is tremendous opportunity for organizations to improve performance by improving structure,” he says.

Span of control – the number of subordinates a manager oversees – flows from these structural decisions. Often management gurus promote a specific span of control for all managers, whatever the level. But complexity of work also plays a role. His own research – discussed, along with his general approach, in his book Optimizing Organizational Design – found that at stratum two, span of control averaged 10 people. It was fewer for the next three levels, where the work was more complex, respectively 6, 5.5, and 7. It takes more time at those levels to understand the issues subordinates are dealing with, and presumably you can only oversee fewer. At stratum six, however, span of control jumps to 11, as subordinates are extremely skilled and managers are looking out 20 years.

“The takeaway is that there is a significant item missing from the toolkit of most managers – optimizing organizational design,” he concludes. You need to align subordinates and bosses for maximum effectiveness. And that won’t come by luck, just by deliberate thought, perhaps using these ideas as a foundation.

Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column, Balance. E-mail Harvey Schachter

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