LONDON: Elon Musk called it a “reorg” but otherwise the Tesla chief executive’s recent email promising a leadership shake-up was straight from the 1980s.
“We are flattening the management structure to improve communication, combining functions where sensible and trimming activities that are not vital to the success of our mission,” the electric car entrepreneur told staff.
A few days earlier, BT announced 13,000 job cuts, mainly in its middle management and back office, as part of a plan to “simplify its operating model including fewer, bigger, more accountable leadership roles and de-layering its management structures”.
FLATTENING, CUTTING THE CHAIN OF COMMAND
These organisations — together with other recent flatteners and delayerers as diverse as Deutsche Bank and Daily Mail and General Trust — are heirs to a trend pursued by the likes of Jack Welch in the 1980s.
As chief executive, he cut the chain of command at divisions of General Electric from as many as 10 links to as few as four.
Mr Welch’s role in pioneering flat hierarchy sounds odd. It has since become the goal of leadership revolutionaries, some of whom want to abolish managers altogether.
Mr Welch is more often lambasted as the corporate emperors’ emperor, practising an outmoded top-down approach to leadership. The clue to this apparent contradiction is in the BT statement.
I would argue middle managers are often the connecting tissue of large organisations. Axe them at your peril.
But even if BT can afford to excise thousands, some of their tasks must now shift to someone else. If those tasks do not pass to the front line, where BT is hiring 6,000 people, they must fall to its “fewer, bigger” leaders.
Similarly, Mr Musk’s flattening of Tesla’s structure is both a reverse justification for a rash of departures and a way for him to concentrate power and oversight at the centre.
Fewer layers equal more opportunities for the chief executive to tinker — a prospect that should worry investors given some of his recent mis-steps.
In other words, flatter is not necessarily better. If you still have an organisation chart, it will probably show how leaders have more direct reports than ever.
(If you do have such a chart, ditch it: it is long out of date.)
When military men first started talking about this “span of control” in the 1920s, they argued, based on centuries of battlefield experience, that a team of six was the maximum manageable size.
GE’s president at the time reckoned he should have no more than four or five direct reports.
Since then, consultants have wasted a lot of time — and clients’ money — calculating the ideal span of control. Mr Welch blew through this in the 1980s by increasing the controlling span of some managers to as many as 18 direct reports.
Some power has filtered down to the frontline, too, but Julie Wulf, an academic who collected data on the responsibilities and pay of senior managers, showed in a 2012 study that flattening “in the end looks more like centralisation”.
Further evidence of the trend is that it is making the chief operating officer redundant. Data about US executive roles gathered by Crist Kolder, a headhunter, now shows only 29 per cent of big US companies have a COO, compared with 55 per cent in 1986.
Technology cushions some of the impact, but leaders are carrying a bigger burden. It becomes unbearable if they try to be too hands-on.
One chairman I met recently pooh-poohed the idea that a company could be too big to manage: “If you’ve got the wrong organisation, the wrong structure and the wrong people, then a corner shop is difficult to manage,” he retorted.
CULTURE, COMPETENCY, COLLABORATION, CUSTOMER SATISFACTION
Clearly, some shape is required. Large and growing companies can fall apart without guideposts.
But leaders who fixate on structure may neglect more important factors, such as culture, competence, collaboration and customer satisfaction.
Peer-to-peer lender Funding Circle had 570 staff when I wrote about it two years ago; now it has 950 and is still growing. Samir Desai, its chief executive and co-founder, has 13 direct reports.
That would have had British generals spluttering into their moustaches 100 years ago, but Mr Desai told me on a return visit, “we’ve never done the work on spans of control. It’s more about being open, making sure things are shared readily.”
Similarly, Stephen Denning, in , explains that large organisations such as Microsoft or Spotify prosper not through hierarchy but by encouraging network connections and ensuring that “anyone can talk to anyone”.
Success increasingly rests on organising companies around what people know and how easily they can communicate rather than where they sit in the org chart.
As for whether the structure is pointy or pancake-flat, that matters less and less.
© 2018 The Financial Times Ltd. All rights reserved. Please do not copy and paste FT articles and redistribute by email or post to the web.