How many managers does an organization need?

Observation #47

carpedia-observation-47Sometimes we do a study that we call the “Span of Control” analysis, where we look at how many subordinates report directly to each manager in an organization. It’s a more difficult study than it sounds, because the way organizational charts are drawn is not always how they really are. Reporting lines are sometimes blurry and titles can be misleading (e.g., some managers aren’t really managers). The numbers alone don’t reveal the full story, but the study does help one learn a lot about the organization.

The question of how many managers an organization needs is a by-product of how many people each manager should have reporting to them. This is an important decision because it ultimately dictates the number of managers, the levels of management, number of divisions, business units and so on. Every manager, in turn, creates additional incremental costs (e.g., travel, meetings, equipment, space, reports, etc.). All these things heavily influence the fixed overhead cost base. During a recession, there is usually a general thinning of management positions (through combining departments and delayering), but this is not always a good business decision. We’ve seen many cases where companies stripped out managers and supervisors only to see productivity subsequently suffer as a result.

The number of managers that an organization needs is a function of the management approach and style of the organization. As such, it can vary by industry – and even by company within the industry. Many organizations use span-of-control rules of thumb to determine how many managers they need, but this approach can become ineffective as job functions and technologies change. The right number should be analytically determined, similar to any situation where you correlate activity and time. Managers do specific “management” tasks (e.g., plan, train, administrate, review) as well as general in-process work. What an organization wants its managers to do determines how many managers they actually need.