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 / Autumn 2008 / Issue 52(originally published by Booz & Company)


Hierarchies for Flow and Profit

When an organizational design is working, people feel happy and fulfilled and the business runs smoothly.

In mid-2007 I ran a Webcast for the management research organization The Conference Board on the subject of organizational design and leadership. We polled the executives of about 40 companies, asking about their layers of management. Upward of 72 percent said they felt the business had too many layers. Worse yet, they did not know what the right number should be.

This is typical, in my experience, of businesspeople. They are mostly in the dark about how their organizational design — the “lines and boxes” signifying reporting relationships in a hierarchy — should be arranged. But most businesspeople can tell when it’s working and when it’s not, because they know when they’re in the “flow zone.” A number of researchers, most prom­inently the psychologist Mihaly Csikszentmihalyi, have identified the value of flow, the state in which people feel happy and fulfilled be­cause they are completely absorbed, caught up in the activity at hand. In organizations, flow typically takes place when the challenges of a job fit naturally with the capabilities that people bring to it.

Organizations, like individuals, need to be in flow to operate smoothly. An organization achieves this state of equilibrium through its management layers. In other words, an organization can approach the flow zone when the positions in its hierarchy have clear, accountable tasks that are aligned to its mission and that match the skills and reach of the people at each level. Or as University of Auckland Business School lecturer Judith McMorland puts it, the key diagnostic can be summed up in two simple questions: “Are you big enough for your job?” and “Is your job big enough for you?” If the answer to both is “yes” throughout the organization, then it is in flow.

A critical component of achieving flow is accountability. If a job has its own discrete decision-making responsibilities, different from those in positions above and below, then the individual in that job feels accountable. He or she has a clear understanding of who the boss is, what the boss expects, why the boss needs particular results, when those deliverables are needed, how those deliverables fit with the organization’s goals, and how to accomplish them. The individual is then free to “own” the job, to organize it accordingly, to deploy the resources at hand, and to enter the flow zone. 

Most of us intuitively understand this, and we gravitate toward positions in which we feel that our accountability is clear and the job fits our talents. But very few organizations consciously seek to organize their hierarchy with this kind of balance in mind. Many organizations base their hierarchies on quotas for job grades and people’s salaries at different levels. As a result, to fit these artificial and often capricious categories, organizations frequently end up with too many layers of management, including some hollow (and expensive) positions near the top of the company and overlapping assignments in the middle. Employees in such a situation do not have a clear sense of who is responsible for which tasks; ac­countability suffers, and the organization loses its groove.

What, then, is the optimal number of layers for accountability and flow? It depends on the size and scope of the organization, and the complexity of its tasks. For example, my colleague Adam Pearce and I undertook a review of a public util­ity in New York in 2007. It had more layers of management than it needed. The deputy chief executive officer had 13 direct reports, whereas a middle management field role in the same chain of command had only two. A conventional cost-based analysis had concluded that the company should eliminate the role with the smaller number of direct reports because, according to the criteria used by the analysts, it was operating less efficiently. But a closer look at the span of accountability revealed the field manager was adding value (albeit in a poorly designed structure), whereas the deputy CEO position was a non-job with no distinct accountability of its own. This was the role that most needed to be purged.

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