Companies tend to go through the cyclical belief by consultants that ‘de-layering’ and increasing ‘span-of-control’ will lead to both lower cost and improved output. Innovation organizations often find themselves working this issue, being pressed to increase the number of direct reports for each manager to ‘improve communication and decision making’. In 2017 the Industrial Research Institute ran a survey to see how the R&D structures of the best R&D organizations compared and how their leaders felt about layers and spans of control to help get to the right organizational structure.
Based on the results of the survey most R&D organizations have approximately 4 levels of management. Many also have one or two levels of pre-management responsibility bringing the total number of organizational hierarchical roles to approximately 7 as described earlier in this chapter.
Also based on the survey number of direct reports for each manager had a sweet spot around 5 to 6, although there are a number of organizations where the number of direct reports was nine or more. Thus since the 1960s work done by NASA where showed that the optimal number of direct reports was around 5 to 7, little has changed. This number seems to remain as the best high-level value to use when designing Innovation Organizations.
When thinking about the effectiveness of changing the number of direct reports, top R&D organizations reported that:
- 1. Changing the reporting structure so that low level people with one or two reports no longer had managerial responsibility. (Chemist – Technician for example), did not improve the effectiveness
of the organization.
2. Removing mid-layer directors/managers, i.e. adding more direct reports to remaining layers, only gave a marginal improvement to effectiveness.
3. Pushing responsibility down into the organization. e.g. Went from a CTO with 3 Director positions to no CTO and a single Director, gave General Managers much more responsibility which they then delegated out to managers and group leaders. In terms of effectiveness, there was no significant benefit, although the cost was reduced dramatically. The long-term impact on Horizon 1 vs. 3 work has yet to be evaluated.
4. Consolidation of some management levels (from 4 to 3) by eliminating a middle management layer increased the span of direct reports from < 3 and to 7-8. Most of this was been done through attrition. This has been effective and created new opportunities for younger talent. 5. Reviewing spans at every layer of the organization on a periodic basis, especially those with two or fewer direct reports and those with more than 12 direct reports, to determine if the outlier ratio was justified, was beneficial. Adjusting was done where the ratio seemed high or low without a good rationale. Typically the outliers were specific program teams or groups with high-functioning managers and senior technical-ladder members present.