Firms Must Find The Right Balance Of Control And Alignment
Firms that have “very few layers of management, if any…. are mostly highly successful,” writes the Director of the Future Work Forum, Peter Thomson, in an article, ““Why Are [Corporate] Rebels So Rare?” Thomson goes on; “This raises the question, if this is such a good way of organising work, why isn’t everyone doing it?’.” One answer is that delayering may not always be the answer. As a further contribution to my series of articles showing why the discipline of management hasn’t advanced, including the inexorable gravitational pull of 20th century management, the lack of clarity of what a coherent model of improved management (aka 21st century management) looks like, and the fragmentation of management thinking into little fixes that leave the bigger systemic issues untouched, there is also the failure to apply what is already known. Delayering is a frequent remedy suggested by consultants to firms that are struggling to enhance flexibility and responsivness. Yet the recommendations are in conflict with the evidence. “For decades,” writes Julie Wulf, a Faculty Research Associate of the National Bureau of Economic Research in her article, “The Flattened Firm”, “management consultants and the popular business press have urged large firms to flatten their hierarchies. Flattening (or delayering, as it is also known) typically refers to the elimination of layers in a firm’s organizational hierarchy, and the broadening of managers’ spans of control. The alleged benefits of flattening flow primarily from pushing decisions downward to enhance customer and market responsiveness and to improve accountability and morale. Has flattening delivered on its promise to push decisions downward?” Wulf concludes not. She presents evidence suggesting that while firms have delayered, flattened firms end up with more control and decision-making at the top, not less. “Flattening can lead to exactly the opposite effects from what it promises to do… In sum, flattening at the top is a complex phenomenon that in the end looks more like centralization.” Wulf used a large-scale panel data set of reporting relationships, job descriptions, and compensation structures in a sample of over 300 large U.S. firms over roughly a 15-year period. This historical data analysis was complemented with exploratory interviews with executives (what CEOs say) and analysis of data on executive time use (what CEOs do). Generally, when managers are talking about flattening the hierarchy, they are still thinking in hierarchical terms. They have yet to emerge from an inward-looking pre-Copernican mindset. Changing the number of layers won’t do much good unless and until mindsets change so as to embrace the primacy of the customer rather than maximizing shareholder value, and a competence-based network rather than a vertical hierarchy of authority. Wulf’s finding ties in with my own experience. I have been in large firms with many layers, where conversations are multi-directional. Anyone can talk to anyone. The right mindset creates the right spirit of conversation, curiosity and fluidity. By contrast, I have been in tiny single-layer organizations which are tied up in bureaucratic knots with a single layer. Decisions based on authority, not competence, began cropping up everywhere. A reasonable hypothesis would be that it’s the mindset that creates much of the rigidity, not just the number of layers. The article in fact offers a vivid picture of the mindset problem. « The successful leader in the past,” writes Thomson, “has been one who is powerful and decisive, who impresses the shareholders with a personal vision and surrounds himself (it’s usually a man) with people who think similarly.
