Just as the water is seeking its path, sometimes almost turning in circles, but always finding its way down into the valley, the same way companies are looking for the organizational line-up that achieves the balance between flat and steep structures. Two findings provide a clear framework. On the one hand the Dunbar number describes the number of people with which someone can keep in touch with – actually 150 or between 100 and 250. If the number of members exceeds that number, the group should be split up in order to ensure functioning. On the other hand, the Miller’s law determines the ability of humans to process simultaneously 7plusminus2 information units (so-called chunks). If more than nine chunks appear at the same time, the risk of overlooking or doing something wrong automatically increases. This determines the framework for the eternal answer of the design of an organization.
Based on the Dunbar number and the Miller’s law there are possibly a maximum of four layers1) and a maximum span of control of nine2). In individual cases it is not the calculability that determines the structure, but the boundaries become clearer. In addition, the span of control is influenced by the following aspects.
- The abilities of the protagonists
The executives, who have an appropriate understanding of their tasks, a suitable toolbox and sufficient empathy master larger spans of control. In addition, specialized and ambitioned employees make leadership easier.
- The complexity of the tasks
Simple tasks that are clearly described, seldom change, allow routine and require little interaction with others, promote larger spans of control. Increasing interaction with other areas as well as continuously changing influences and requirements limit the span of control.
- The geographical distribution of the protagonists
If all participants are sitting in a room, it allows a maximum span of control. The further the members are apart, e.g. distributed globally between Japan and the west coast of the USA, than the span of control will decrease due to tougher reconcilement down to a minimum.
- The available governance
A Governance described in sufficient detail allows for wider spans of control. It is not a matter of regulating everything in detail, but of outlining the decisive aspects in such a way that everyone can follow them and develop a common mindset – including principles, alignment ways, basic understanding and clear roles (task, authority and responsibility).
- The predominant management style
The self-understanding of the managers includes above all their comprehension of how the interaction between management and employees has to happen. The more authoritarian the management style, the shorter the leash on which the employees are led – which leads to a lower span of control due to the performance limits of the managers. New approaches are based on self-organization, i.e. employees take over management, coordination and control – which enable a larger span of control and flatter structures.
Bottom line: The eternal answer of the span of control is not only theoretically clear – k+kn<=150; where k is the span of control and n the number of at least two hierarchical layers. In daily business, the span of control has settled at five to nine – higher and lower outliers confirm the rule. The number of levels is mitigated by the division into semi-autonomous business units, as soon as a certain number of members (more or less 150) is exceeded, new units are formed. Companies that operate outside this framework should critically review their performance – How fast do we make decisions? How agile are we? What friction losses do we detect? What is the contribution of our structure? The measures derived from this include organizational adjustments, according to the eternal answer
1) Using four levels, a span of control of three is possible ( 3*3*3*3+3=84).
2) Two levels and a maximum span of control of 9 are possible (9*9+9=90).
The digital transformation is based on information and communication technologies (ICT) that, in the meantime, are broadly available. Most countries in the world, with the exception of Germany, have a modern infrastructure that provides sufficient bandwidth ubiquitously. The IT departments of companies are still suffering from a lack of understanding of their executive board concerning the importance of IT. At the same time it is difficult to find a DAX-listed group that is not yet committed to the digital transformation. In this situation, the new VUCA era shakes the self-understanding of the leaders. Everybody is seeking for a new, viable leadership style.
As long as you don’t split the hair, there is already a workable solution – Management by Results. It is not simply about delegating tasks or setting goals, but about agreeing on results that are written down specific enough, measurable, acceptable, relevant and testable (for shot: smart).However, this particular form of Management by Objectives (MbO) is challenged by the following aspects.
- VUCAneous World
The new complexity is called VUCA (i.e. Volatile, Uncertain, Complex, Ambiguous). This is where the aspects are tied up that destroy a carefully considered, planned approach. Volatile is a situation in which after a short moment it completely changes or disappears. The lack of reliability and validity makes it uncertain. It becomes complex when complicatedness continuously changes dynamically. Ambiguity emerges from the diversity of interpretations.
- Volatile organizations
In the past, the organizational structure was a hard factor (see 7-S model). The company structure provided the basis for building long-term leadership relations. Today, working groups are put together temporarily as part of projects and holacracies. The resulting loss of home and comfort prevents the development of traditional leadership relations. This makes the managers futile.
- Agile Decisions
An important effect of digital transformation is the persistent acceleration of the decision making. The general availability of information, anytime and anywhere, makes the previous cascades of dissemination of information The leader as an ambassador and world explainer can no longer fulfill this in a reasonable time. Within the framework of self-organization, the actors themselves take care of (re)acting early on, flexibly and, if necessary, proactively.
- Distributed work environment
Globalization does not only work around the globe, but already begins where employees no longer work in one location. If the team is based in various sites at opposite ends of a big city, the commute to and from the meeting quickly takes two to three hours. Today, this geographical distribution is compensated by new work styles and the virtualization of meetings in the net.
- New skills
The environment is also changing faster and faster. Political, socio-cultural and economic conditions as well as technological development influence the activities incessantly. A lavish preparation is no longer possible. Participants need new skills to survive in this environment. They must be able to quickly familiarize themselves with any subject area, to manage or support a project, as well as to critically question interim results at any time in order to eliminate deficiencies at an early stage.
- Result maximization instead of cost reduction
The result comes first. This starts with a minimum viable product (or service) and ends with the desired overall result. Good behavior, planning enthusiasm and stinginess are rather obstructive. All that matters is the result – are the results. This eliminates many tasks that are only carried out for political self-protection and do not contribute to the eventual outcome.
Bottom line: In companies, the question arises what managers will do in the future, when employees make their own decisions. Some have taken this step and made the executives a part of the workforce – without extra bonus, company car, own office and assistant. The enhancement from Management by Results to Management by Self-Organization is not yet clear, but the change (see above) stands out on the horizon (more here Freedom, Inc. ).