In January 1988, author and management guru Peter Drucker made a bold prophecy. Writing for the Harvard Business Review, Drucker predicted that in 20 years organizations would cut layers of management in half and shrink their management staff by two-thirds.
Such has not been the case. In spite of the growth of alternative organizational systems like holacracy and the gig economy, management has, in fact, ballooned.
From 1983 to 2004, the number of managers, supervisors and support staff in the U.S. workforce grew by 90%, while employment in other occupations grew by less than 40%.
Some might argue that in an increasingly complex business environment, the growth of bureaucracy is inevitable. Yet, author and management expert Gary Hamel finds that excess management is costing U.S. companies $3 trillion per year. Hamel argues that bureaucracy imposes a heavy tax on today’s organizations in four considerable ways:
1. Managers add overhead. The average manager-to-employee ratio is 1:10. A small organization may have one manager and 10 employees. A company with 100,000 employees and the same 1:10 ratio will have 11,111 managers. That’s because they’ll add 1,111 managers to oversee the managers. Layers breed layers.
2. Bureaucracy distorts reality. The bigger the decision, those with authority to decide are at a greater distance from frontline realities. “Give someone monarch-like authority, and sooner or later there will be a royal screw up,” writes Hamel. All too often, decisions made on the top floor are unworkable on the ground.
3. Layers choke information. In a multi-layered management structure, communication gets bottlenecked, innovation stagnates, and silos grow. In their effort to prove their value, managers often impede, rather than expedite, decision making.
4. Hierarchy disenfranchises. Hamel argues, “As a consumer you have the freedom to spend $20,000 or more on a new car, but as an employee you probably don’t have the authority to requisition an office chair.” Treat an employee with distrust, and you shrink the incentive to dream, innovate and contribute.
Most managers are hardworking employees. But, research by Deloitte Economics finds that half of their time is spent on low-value, internal compliance processes.
The goal, of course, is not to fire all of the managers. Instead, redeploy their time from mind-numbing, non-value add work and into value-creating work. Sound impossible? It’s not. Just 25 people work at Berkshire Hathaway’s corporate headquarters. Morning Star, the world’s largest tomato processor, practices a management-less model in which employees are “self-managing professionals.”
Companies like these understand that bureaucracy is a drag — on creativity, on productivity, and on culture. What is the cost of bureaucracy at your organization?
Question: Is your hierarchy choking your productivity?
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