Levels of Management and Grouping Considerations in Organization Design
Last week’s entry in our ongoing series “Organizations that Work” provided additional perspective on the importance of establishing and formalizing cross-boundary role relationships to improve organizational effectiveness. This week’s blog will delve into the basic elements of organization design, the distribution of work across an organization through effective levels of management (layering) and grouping of work.
Begin with strategy
“Right work, right level, right time,” is the output of a well-designed organization, it does not happen by accident. A good organizational structure is aligned to and supports strategy. Roles that encompass the right work, aligned to strategy, at the right level, with the right targeted outcomes over the appropriate time set the stage for the successful execution of work.
The number of levels of management required in an organization is established by the strategy, the work required, and the overall size and complexity of the organization. Existing organizations may not have the optimal number of reporting levels to deliver their strategy and business plan. Groupings of work must also be established by strategy, aligning work and roles to what the organization wants to accomplish. Because of this linkage, grouping and layering decisions are interdependent and must be decided together. It is however helpful to look at grouping and layering separately to understand the importance of each.
Understanding Levels of Management and Layering
Organization design research has shown a maximum of seven discrete levels of management exist in the most complex businesses. Often, the number of actual layers does not match these discrete levels of work, with many organizations having more layers than required. The following diagram shows types of work that occur at the discrete levels of work (LW). The bigger or more complex a business is, the more layers of work (levels of management) are needed to manage it.
The ideal organization structure matches the number of layers with the number of levels required based on the organization’s strategy and complexity. For example, a fully integrated standalone profit and loss business, such as a national retail chain or business unit subsidiary of an international manufacturer, would likely require 5 levels to deliver the strategy and would therefore be a LW5 business. In this example the President & CEO is a LW5 role and is accountable for the leadership and work outputs of LW4 role holders (vice presidents), a LW4 manager is accountable for the leadership and work outputs of a LW3 role holder (director) and so on. The work in each manager role is distinct enough from the employee role that it adds value to the level below.
To be effective, each employee should have only one accountable manager, and that manager adds value by operating at the next highest level of work complexity. If the manager and direct report are operating within the same band of complexity, this is called a jam-up or compression. If the manager is operating more than one level of complexity above that of the direct report role, there is a gap.
- Where jam-ups exist, role holders and their managers usually compete for the same work, and the manager does not add value to direct report roles, often interfering and duplicating the work of direct reports and negatively impacting performance.
- Gaps in work (where roles do not have a value-adding manager), the role holder does not receive sufficient coaching and support, and important work does not get completed, negatively impacting performance and employee development.
Effective layering will ensure the number of managerial layers match the number of levels required by the strategy, and each role has a manager performing work one level higher in complexity.
Understanding Grouping
Strategy will provide the roadmap for the nature of work and roles required. For example, it is intuitively obvious that the work required to manage a retail clothing chain is very different from the work necessary to extract ore from a mine. Two companies in the same industry would have some similar work and roles but also unique roles related to how they go about creating strategic advantage. For example, the buyers at a discount or off-price model retailer would go about their work differently than buyers at an upscale clothing retailer, and competitive advantage would be created in different ways as a result of the uniqueness of these roles.
An overarching grouping principle is to group similar work as much as possible so everyone in the organization is clear where accountability lies for the outputs related to that type of work. For example, a business unit ensuring all marketing work is nested in one marketing unit ensures the marketing leader can be held accountable for all aspects of marketing work. When marketing work is located in different departments across an organization, such as product management in one area and advertising and promotion in another, then the introduction of new products requires two different leaders to coordinate activities often creating conflict and slowing product launches.
The following chart outlines the different types of work that can be found in a for-profit business unit. Grouping principles make a clear distinction between the following types of business unit work (operational spine aimed at understanding and satisfying customer needs) and the various types of support, stewardship, and major enhancement work:
A key organization design principle is to first design the work within the operational spine that collectively drives revenue, and then design the support functions to enable that mainstream work to take place. Support work is most often nested primarily within resource sustainment functions such as HR, IT and Finance, however, it can be nested in the mainstream of the business. When there is a significant amount of support work nested within the operational spine of a business, then there is usually duplication, extra expense, and conflicting expectations and standards of support.
Where possible, grouping decisions should be made at a whole systems level to create consistency and effective cross-boundary work, while reducing the cost of coordination. Examples of ways to group work include alignment by function, markets, technology, or geography. As described earlier, coordination costs increase when functional decisions must be made across multiple departments (e.g. Marketing, Operations, etc.) rather than in one integrated function.
Consider Layering and Grouping Together
We mentioned earlier that layering and grouping decisions should be decided together. For example, placing accountability for operations work strategy too high in an organization takes senior executives’ focus away from growing the business. Every few years the value of middle management comes into question and organizations eliminate these middle layers and have front-line managers report directly to vice presidents and general managers. Inevitably the vice presidents stop doing their general management work focused on growth in order to ensure operations are running effectively. Inevitably the value of the middle management work is realized when growth begins to stagnate.
Effective layering and grouping are at the heart of organization design, removing blockages both vertically and horizontally across an organization. Done well they will enable you to create strategic and competitive advantage.
For more on work layering and groupings of work please see our Work Layering YouTube explainer video below.
This blog is part of our ongoing series Organizations that Work. To see all of the blogs in the series that have been posted so far, click here.
Every Tuesday over the next few months, we will be posting blogs that take you from the pain of poor organization design, to identifying the root causes, to the benefits of undertaking strategic organization review. We will discuss the steps needed to effectively align your structure and work with your strategy, and we’ll discuss the processes that take out the guess work and help you to get it done. Through it all we will discuss how to lead the change from start to finish.
If you’d like to speak with us about how we can help you on your journey to an organization that works, please follow us on LinkedIn or book a call directly with one of our partners.
Our approach draws on several bodies of work including Stratified Systems Theory, the work of Dr. Elliott Jaques. For more on Dr. Jaques and his work visit the Requisite Organization International Institute at ROII Requisite – ROII Requisite.