Monday, 14 January 2013

Organisational Structure and Spans of Control

When a business begins the management structure is simple, one person does everything. As it expands it becomes more complex as you layer employees then your time spend managing those employees grows, with payroll queries, issues, reviews, etc. Then if you continue to grow you delegate this to middle manager who acts as a span breaker, and once it becomes so large you may even divide the work into departments. This is when companies usually go wrong.

If you follow a management principle from the start of say 1 manager manages 6 people this should be carried forward and in fact it is actually easier to manage managers as generally you can be more relaxed that they are doing a fine job so your spans could increase. Most companies work counter intuitive to this and have less spans the higher up the organisation you go and a lot of Multi Nationals end up with spans that shrink during a recession. The problem is that often during any kind of project to reduce your workforce and improve your capacity it is so easy to forget the additional benefits this efficiency will save you. I will illustrate below in a case study example:

Company 1

This company has 100 retail stores around the UK and currently employees managers on spans of 1:5 in most of it stored having 3 managers and one overall manager. They introduce a new stock management system meaning that they no longer require any time to do a stock check in the evenings, saving them 6fte per store (fte = full time equivalent). The original 6 saving is accompanied by the reduction of 1 manager and the total saving is then calculated on the basis of these 7 staff. Perhaps there is a selection process where staff are pooled to identify those at risk or the turnover is high enough to manage down the staffing number over time.

The lost opportunity here is the saving you have made on 1 of the other managers only now managing 4 people and the overall manager now managing 2 managers. This would be an additional saving that most companies would say is not realisable due to the fact you cannot get rid of part of a person. Wrong, if you are going to the effort of implementing a new system then surely its little effort to also do analysis of the roles and adjust them accordingl;
- Could the overall manager take on some more senior direct employees thus saving you a new manager
- Could you look at other time saving methods to reduce the management time required?

However, if you do remove another of the managers you end up with a strange structure or different levels reporting into the same person, but in practice this is not an issue as long as you have the correct people in the job. You still have the same career path as before.

Too often there are efficiencies made during a recession that affect the 'front line' of a business with little affect on the middle or senior management, when in fact this is your biggest cost. I can't say i have ever been into any company and thought, wow i wish there was more managers around, but i often think I wish there was more front line staff to serve or help me.

Written by
Google Steven Hill