If you’re trying to track down the source of some of your company’s biggest expenses, you might want to look in the mirror. Yes, it’s true: Managers are expensive.
“Every additional supervisor adds costs well beyond his or her salary,” write Michael Mankins, Chris Brahm, and Greg Caimi in Harvard Business Review. “Supervisors schedule meetings; those meetings require content that some people must generate and others must review; and each meeting typically spawns even more meetings.”
And all that adds up, writes Gary Hamel in Harvard Business Review. “A small organization may have one manager and 10 employees; one with 100,000 employees and the same 1:10 ratio will have 11,111 managers,” he explains. “That’s because an additional 1,111 managers will be needed to manage the managers.”
Plus, each of those managers generates more work. “Adding a manager to an organization creates about 1.5 full-time-equivalent employees’ worth of new work—that is, his own plus 50 percent of another employee’s—and every additional senior vice president creates more than 2.6,” Mankins, Brahm, and Caimi write.
How do managers do this? With the best of intentions, of course, writes Ron Ashkenas in Harvard Business Review. “Senior executives, for instance, understandably want information, but they may not realize that a request can set off a cascade of reporting work, which often keeps being added to over time,” he writes. “What seems like a simple question to a CEO can turn into a major exercise for hundreds of other people.”
Moreover, managers tend to bring along their own additional staff, Mankins, Brahm, and Caimi write. “The ‘caravan’ of resources accompanying a manager or a senior executive, which may include an executive assistant or a chief of staff, adds further work and costs.”
That’s not all. “There will be hundreds of employees in management-related functions, such as finance, human resources, and planning,” Hamel writes. “Their job is to keep the organization from collapsing under the weight of its own complexity. Assuming that each manager earns three times the average salary of a first-level employee, direct management costs would account for 33 percent of the payroll.”
So finding a way to eliminate some of those managers can save a lot of money, Mankins, Brahm, and Caimi write. For example, the University of California at Berkeley managed to save $120 million annually by standardizing and simplifying work by function and sharing management across units. Some organizations even require managers to justify the bureaucracy they induce.
But getting rid of layers of management isn’t easy, write Gary Hamel and Michele Zanini in Harvard Business Review. “For all its enemies, bureaucracy is amazingly resilient,” they write. “Since 1983, the number of managers, supervisors, and support staff employed in the U.S. economy has nearly doubled, while employment in other occupations has grown by less than 40 percent.”
This is particularly the case if an organization has undergone a lot of mergers and acquisitions, Ashkenas writes, because each business unit might have individual support functions—such as product supply, sales, finance, human resources, information technology, research and development, and legal—rather than providing those functions more centrally on a corporate basis.
Some organizations are eliminating this duplication by centrally providing functions such as finance and HR through a shared service. Following this model, core operations are centralized in one or more Shared Service Center (SSC) locations with one set of streamlined processes and onetechnology to serve a region or a corporation. As companies grow, shared services can provide more efficient operations. The adoption of shared services provides a foundation for growth, enabling organization to transform operations from a decentralized, divisional staffing model with disparate systems and processes into a more efficient worldwide service center (or regional service centers) characterized by reduced costs, improved service levels, and increased control.
Beyond adopting shared services, other companies are really going all out and eliminating managers altogether—or making everyone a manager, depending on which way you look at it. That system is called Holacracy, and organizations that have tried it report different levels of success.
For example, the Morning Star tomato processing company uses what it calls self-management rather than having layers of managers. Instead, employees write “letters of understanding” each year with the other employees most closely associated with their work.
On the other hand, when Tony Hsieh, CEO of online shoe and clothing company Zappos, initiated a Holacracy by offering to buy out any employee who didn’t support it, by some reports as many as 30 percent of the company’s employees took him up on it. However, Hsieh points out in Fast Company that the company typically had a 20 percent turnover anyway and that perhaps people were taking the buyout opportunity regardless of their opinions on Holacracy.
While you may not want to go so far as to eliminate managers altogether, there’s a lot to be said for looking at ways to simplify organizational structure. Ashkenas and Lisa Bodell offer seven strategies to simplify organizational structure in your company, including:
- Reduce low-level tasks, such as how many people have to approve something
- Base requirements on what your customers need
- Prioritize the tasks that are important (and identify those that aren’t)
- Examine your business processes and look for steps that you can eliminate
- Speak up when managers and coworkers create more complexity
- Look for indications of too many layers, such as when someone is managing only one or two people
- Keep an eye on things you’ve changed so they don’t creep back
In any event, having a structured way of automating business processes makes it easier to keep track of the reports and functions your organization already has—before you find yourself in the embarrassing position of creating a committee just like one you created a year ago.
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