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What happens when you give one manager 50 direct reports and call it innovation? Well, it's chaos. In this episode, I cut through the corporate delusion that flatter structures are better and I give you the insights to help you confidently build a structure that actually delivers results.
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Welcome to the no Bullshit Leadership Podcast. In a world where knowledge has become a commodity, this podcast is designed to give you something more access to the experience of a successful CEO who has already walked the path. So join your host, Martin Moore, who will unlock and bring to life your own leadership experiences and accelerate your journey to leadership excellence.
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Hey there and welcome to episode 396 of the no Bullshit Leadership Podcast. This week's episode. How many direct reports is too many? There's a seductive idea that's quietly been taking hold in the corporate world. That layers of management are nothing but overhead, that self managing teams are the future, and that the fewer bosses you have, the more agile and innovative your team becomes. Well, it sounds like it should be true, but it's not. It's bullshit. In this episode, I start with the fundamentals. Why organisations need teams, why teams need structure, and why leaders are essential to making both work. This leads into the discussion on the main tool of indiscriminate cost cutting. Span of control. What really happens when companies blow past the traditional limit of 6 to 12 direct reports in the name of efficiency and who pays the price? Is Meta's recent decision to run an AI team at a 50:1 ratio. Flirting with disaster. I'm going to examine the real costs of delayering, the ones that don't show up on a balance sheet until it's too late. And I'm going to close with four practical factors that you can use right now to assess whether your own structure is working for you or against you. So let's get into it. Many years ago, a colleague of mine told me about an experiment he ran. He was in the tech industry and he decided to harness the brain power of the best and brightest people he could find. So he went out and hired a couple of dozen PhDs, all brilliant people with high intellect and deep knowledge in their area of specialisation. He figured that if he put these geniuses all in a room together and gave them some broad objectives, they'd find a way to maximise value. You may not be surprised to hear that it was an unmitigated disaster. After a little over a year, he had to shut the experiment down. He told me it was like herding cats. Everyone went off in a thousand different directions. Massive amounts of activity, exploration and theorizing, yet no commercial value whatsoever was harvested from that unit. This is just one story that reinforces so strongly with me why organisations need teams and why teams need structure and why leaders are needed to bring this structure together. Organizations are called organisations for a reason. They enable resources to be organized into work groups that perform specific functions. And this principle is called the division of labor. Now, the theory goes all the way back to the Greek philosopher Plato around 400 BC, but the modern roots are ranked in the work of Adam Smith. His publication from the late 18th century, the wealth of nations, is still used today. It's a classic. Division of labor has served us well for centuries and it's going to continue to do so long into the future. It's become part of how we think. And even in the age of AI, we're going to be thinking about what tasks can be given to AI and what tasks have to be divvied up amongst the humans. Now, if you assume that you need division of labour and teams, then you also have to assume that you need someone to lead those teams. Here are the top five reasons why, in my estimation, leaders are necessary to achieve any sort of team performance. The first reason is that people need direction. Someone has to feed the work to the team and it has to be coordinated with other teams. Individual contributors are typically pretty poor at this. They just want to do shit. Leaders have access to planning information and other data. They make decisions about resource deployment. And the larger the organization, the greater the complexity of the strategy at the top, so the more difficult it is to break it down into more manageable elements. The second reason is that organizations need visibility. There has to be some feedback mechanism for results. Leaders are there to ensure that results match objectives. They have to report on progress, they have to solve problems and they have to make adjustments on the way through. The feedback loop from the bottom upwards is almost impossible when without leaders. The third reason is that talent needs to be allocated deliberately. The highest value work should be allocated to the most capable people. Leaders are in a position to match capability to opportunities. This also feeds into talent management and workforce planning. Now, this stuff doesn't just happen by itself. Not to mention the fact that your talent requires development and nurturing if you want to keep it. That is reason number four. The will of management needs to be executed at the very top of the organization. The leaders know what has to happen in order to create the most value for the business. You don't have to study the psychology of incentives for long to realize that leaders are more likely to execute the will from above than are the lower level workers. Even if you could find a way to incentivise frontline employees sufficiently, it's almost impossible to differentiate their performance in any meaningful way without a leader who makes that assessment. And finally, reason number five, communication needs to be disseminated. The messages from the top have to make it all the way to the bottom. Email has shown itself to be a very poor method of achieving this. People see the world through the eyes of their direct manager. They don't want something explained by someone four levels up the hierarchy. They want it explained by the person they report to day to day, who they at least have some relationship with. Now, when it comes to managing teams, there's a whole bunch of things that simply won't happen unless a leader makes them happen. One might even go so far as to say that the self managing, self regulating team is an A grade bullshit story. It was cooked up by executives who were trying to reduce management costs so that they could improve their bonus potential. It was supported by employees who were much happier in the absence of any oversight. And it was perpetuated by leaders who couldn't articulate why they were critical to the functioning of the business. Quietly and gradually, the commitment to managers and leaders seemed to evaporate. The most recent evidence of not being valued came in the form of an article that I read recently in Fortune magazine titled Meta's new AI team has 50 engineers per boss. What could go wrong? Now this brings in the concept called span of control. Traditionally, the accepted span of control was between 6 to 12 people. In other words, anyone in a leadership position would have between 6 and 12 direct reports. This is a pretty good rule of thumb, but there are also some good reasons to break it from time to time. For example, some smaller functions require high level expertise and strategic skills at the top, even though the number of subordinate functions may be limited. Take the general counsel, the chief lawyer of a large company. They may be at the senior vice president level, very senior in the hierarchy, but possibly only two or three direct reports looking after key service areas or technical disciplines. By the same token, a regional manager might have direct reports in quite a few different locations, demanding a span of control even greater than 12. To give you an idea how it should play out, when I was running CS Energy, the spans of control varied greatly from level to level. The company was generating over $1 billion in revenue each year. The balance sheet was worth over $2 billion. But there were only about 500 full time equivalent staff. As CEO, I had five direct reports operations which included asset management, finance, energy, market trading, commercial and strategy and corporate services which had legal, hr, risk and so forth. These five portfolios gave me line of sight to the big value drivers of the business underneath me. My executives had a range of spans varying from a low of 3 to a high of 9, and I was pushing the exec with 9 to slim it down as he couldn't cover the breadth of that easily. Now knowing that I ran a multi billion dollar company with only five direct reports gives you a little bit of perspective. But for your context, if you have too few direct reports, the purpose of each level can become blurred, and if you have too many, you can't give each of them the attention they need. Tech companies have always been a sort of an outlier. They tend to have very large spans of control. Now they'll tell you that this is because tech companies lend themselves to flatter structures. Theoretically, it's a function of the nature of the work. Collaboration and professional standards are supposedly high. I find this statement fascinating, particularly given the fact that so many technology projects either fail outright or in the best case, don't deliver the promised benefits. It's worth going back just for shits and giggles and having a listen to a podcast episode I did last year where I outlined the reasons for this it was episode 363 why your it project will fail. We'll leave a link to that one in the show notes, but I digress. Historically, even the tech sector has considered a span of 25 to be the outside limit, but apparently Meta has gone to an AI team with a 50:1 ratio. The theory says that companies are more agile when they have flatter structures. IT streamlines decision making, and IT positions management closer to the frontline workers and the customer experience. Well, that's plausible, but the downside consequences are massive. According to the latest survey from Gallup, in the last year average team size in the US has increased from just under 11 to a little bit over 12. This represents a 50% increase in team size since Gallup first measured it in 2013. But it's still the case that two thirds of managers have less than 10 direct reports. So the numbers are skewed by a small number of companies that choose to go wild with delayering. There's no doubt that flatter structures save direct costs, but there are a whole lot of indirect costs too. And just because you can't see them doesn't mean they don't exist. You can't always recognize them immediately, but they become more and more obvious over time, when you think of it in the context of the five reasons why we have organizations and teams in the first place, it's really easy to see the number of ways that this could go wrong. You'd have a situation where communication between layers actually deteriorates because the leaders who are left don't have the bandwidth to understand everything that's going on below them. Junior employees get overlooked and they don't receive the necessary development line. Managers burn out because they're so overworked. Good people and bad people alike are left to their own devices. Projects in distress aren't identified until it's too late and decision quality deteriorates because there's no higher level input. Now, personally, I have no doubt in the value of management leadership and organizational structure. It's never perfect, but it's better than the alternative, which is predictable chaos. Companies prove to be highly resilient to the shit decisions that their boards and management teams make. But anyone who thinks that removing layers of leaders doesn't have an impact is living on borrowed time. I want to give you four key factors that you can weigh up in determining how your structure should look and how many direct reports you should have. The first factor is the physical constraints. Are you running teams in different locations? If so, having a direct report from each location often makes sense. But once you start to get to eight to 10 locations, say, you should probably consider putting in a span breaker. Now, what does that mean? Let's say I'm an operational manager in Sydney. I might have 15 store locations that sit underneath me. I could potentially use a couple of area managers to oversee some of the smaller stores. In this way, I could turn 15 reports into say, seven. Two area managers, each with five smaller stores underneath them and the five big flagship stores still reporting directly to me. The second factor is the experience of your direct reports. It matters what level you're operating at. Now, using my CS energy example, my five direct reports were all capable, experienced senior leaders. They were independently competent and and they required less oversight from me as their direct manager. However, this also demanded that I spend significant time with each one to make sure they were getting the direction, support and guidance they needed from me. To keep their teams moving. Less experienced reports at lower levels will need even more handholding on the basics. The third factor is the uniqueness of the role itself. In organizational design, there are a few rules of thumb. Each layer must have a unique purpose. Each layer must produce a unique set of deliverables. And each layer must focus on a unique time horizon. If you Apply these principles, you'll find out pretty quickly what's wrong with your structure. It doesn't necessarily mean you shouldn't use workarounds like the span breaker area managers I mentioned before. But it certainly forces you to consider why your structure is the way it is. In the Meta example, I suspect the amount of ground that needs to be covered by only two layers. That's 50 technology gurus and one manager is unworkable. In cases like this, what typically happens is that the results become more dependent on individual performance. Some people are going to find a way to make it work and others are simply going to flounder. But with such a large span of control, you've got no chance of catching an imminent catastrophe before it hits. The fourth and final factor is the dominant culture. The culture of the company is going to largely determine what's acceptable in terms of structure in Meta. I suspect you wouldn't get very far if you suggested that each of your leaders should have a maximum of five direct reports. It may even be a career limiting move. And there are other cultural factors as well, of course, like how much a leader is expected to dip down and work on the tools. To what extent is decision making either centralised or decentralised? Are decisions pushed down to the lowest practical level at which they can be made? How strong are the single point accountability structures? And is a bias for action and individual independence valued inside the culture? Understanding the barriers and expectations is the first step. The second step is to push your span of control as far as the culture will let you and then make the case for going even further. If you don't have the right number of direct reports, you're not going to be able to give each of them the attention they need to bring out their best performance. So you've got to be really clear on how you're going to make that happen. As a leader, vague notions of why you think you need either fewer or more direct reports simply aren't going to cut it. You've got to be able to clearly articulate the value that might come from any structural change. To make any structure work, you need strong leadership and a constructive high performance culture. And you can't achieve that unless you've got the bandwidth to spend with your direct reports. All right, so that brings us to the end of episode 396. I really hope you enjoyed it, but as I'm sure you know, listening is easy, leading is hard. That's why we created Leadership beyond the Theory, our flagship program that turns insight into action and action into results. This is where we unlock the secrets of elite leadership performance and give you the tools that you need to lead at the right level. I'm looking forward to next week's episode where I'm going to do a Q and A with M. Until then, I know you take every opportunity you can to be a no bullshit leader.