Corporate culture has spawned an entire industry. It has inspired cover stories in Fortune and Business Week. If a firm is not working on an extensive “culture change program”—and paying a consultant a pretty penny to guide it through the jargon-infested thicket—it’s clearly not with it in 1986.
But culture, love of the customer and consideration for the individual worker still are not sufficient to ensure progress, or even survival. At least not if your firm is burdened with a ten-layer organization structure.
Structure kills. Good intentions and brilliant proposals will be dead-ended, delayed, sabotaged, massaged to death and revised beyond recognition by the over-layered structures at most large and many mid-sized firms. In fact, one executive cautions, “It’s the smart guys who are the problem. You can avoid a dummy’s query. But a smart guy, let alone a horde of smart guys, can tie up your entire line operation with endless brilliant requests for information and situation assessments. You spend so much time responding and sitting on their damn ‘multi-function committees,’ that you don’t have time to do anything.” Indeed, my most frustrating experiences as a consultant have been at firms hip-deep in brilliance, but incapable of timely action. They prefer to study it instead of try it.
Peter Drucker’s still-timely 1954 book, The Practice of Management, recommended seven layers as the maximum necessary for any organization. I insist that five be the maximum—that’s the number of layers the Catholic Church makes do with to efficiently oversee 800 million members. In fact, the five-layer limit should only apply to complex organizations such as multi-division firms. Three layers—supervisor, department head, and unit boss—should be tops for any single facility such as a plant or distribution center.
A meticulous 1985 study by management consultants, A.T. Kearney, Inc., contrasted winning and losing companies. Winners had 4.1 fewer layers of management than losers (7.0 vs. 11.1) and five hundred fewer central staff bodies per one billion dollars in sales.
The Dana Corporation had 15 layers a dozen years ago, and was barely eking out a profit from its then-one billion dollar sales to the then-healthy auto and trucking markets. Today, with just five layers of management, Dana earns a healthy return on its now four billion dollars sales, despite a much tougher external environment.
Dana Chairman, Gerry Mitchell explains how he came up with the magic number: “It’s a lot better than six and not as good as four.” And that is about as profound and systematic as you need to be when you cut back your layers. If you use logic, you are doomed because, without exception, every coordinating, staff and line position in every department makes perfect sense. The creation of bloated structures was not the work of fools. The micro logic was always sound. But at some point the macro logic comes back and bites us. General Electric Chairman, Jack Welch, acknowledged this when he said he figured out why his company has twice the number of staff needed: “The second half was hired to process the studies and papers the first half generates.”
The root of the problem runs very deep, starting with basic notions of “acceptable span of control” at the lowest level in the organization. Years ago, that kind researcher Jim O’Toole commented, “The American worker would appear to be oversupervised.” That’s no slight understatement when you consider that the ratio of supervisors to nonsupervisors in the U.S. runs one to ten. At Honda, that ratio is one to two hundred.
Lincoln Electric Co. is a star in the eclipsed arc welding industry. Undoubtedly the five hundred million dollar firm prospers because of more than 50 years of enlightened management methods, including a revolutionary gain-sharing incentive scheme. An equally key element is that the Cleveland-based firm makes do with one supervisor for every one hundred nonsupervisors.
General Motors Corp. and Ford Motor Co. have experimented successfully with elimination of several layers of plant management. In some extreme cases, 1,000-person operations have only one formal layer of supervision—the plant manager.
The total absence of formal structure sometimes can be quite effective. In other instances, new forms of nonsupervisory coordination are being tried. Take Herman Miller Inc., the successful Zeeland, Michigan-based office systems firm. Its interlocking structure allows it to minimize traditional formal structure. Every person is part of a work team, and every work team elects a caucus representative to a departmental body. Each department elects one representative to a division-level council, which makes all workplace decisions.
For those readers who are hooked on the corporate culture craze, consider the cultural value of the limitless contribution of motivated and well-trained first-line workers, who are redefining their tasks to include construction and monitoring of budgets, development of complex measurement systems, inventory management, self-inspection, plant or shop-floor layout, machine and work-station redesign, team problem-solving, and enhancement of quality and service.
In today’s newly competitive environment, the cost of bloated structures is unacceptable. Lighter, more innovative, closer to the customer, quality- and service-oriented, more responsive organizations are a necessity for survival in every business. Most mid-sized and large firms cannot afford not to cut 60 percent to 90 percent of their layers and staff across the
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