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Span of Control

This is a presentation I use to talk about span of control with management. You can see why today's organizations are focused on being flatter.

Background

Based on conservative estimates of salary costs for managers and supervisors, a back-of-the-envelope calculation of the difference between lean and average spans of control for a major oil company in 1993 was a saving of 1.8 billion dollars.

Conclusions reached by A.T. Kearney study:

  • The difference between lean and average spans of control is consequential. For a billion-dollar company, it amounts to 500 managerial jobs.
  • Figuring average salaries paid, the cost nearly equals the net profit most corporations earn on a billion dollars of sales.

Both Tables From a 1979-1983 A.T. Kearney Study

TABLE 1
GROWTH
26 LEANLY MANAGED CO.'S %
INDUSTRY AVERAGE %
SALES
11.5
5.3
EARNINGS
9.6
1.4
MARKET VALUE
20.0
2.3

TABLE 2
AVERAGE NUMBER OF
26 LEANLY MANAGED CO.'S
INDUSTRY AVERAGE
SALARY LEVELS
7.2
10.8
DIRECT REPORTS PER MANAGER
4.8
2.6

How lean can you go: Is a span of 10 better than 4.8, and 20 better than 10?

Conference Board Study of Spans (conducted after the Kearney Study)

  • Looked at 105 units in 25 companies
  • Average span of control was 7.8
  • More than 10% of units had average spans of >20
  • Average number of layers was 5
  • Units with between 1,200 and 4,000 employees have a median of 6 layers
  • Experienced executives doubt any simple, universal norms exist regarding spans of control and layers
  • Study concluded that not enough is known to endorse any one set of norms as "right"

Factors Impacting Span of Control

    The diversity and complexity of the work performed by the organization.
      The more diverse and complex, the narrower the span of control.
    The experience and quality level of the workforce
      Experienced people, who were well selected and have been developed effectively need less day to day supervision.
    The extent to which coordination or interdependence is important between employees and groups.
      The more important coordination/interdependence is, the narrower the span of control.
    Amount of change taking place in the work environment.
      A lot of change requires more attention to supervision and, therefore, narrower spans of control.
    The extent to which coordinating mechanisms exist and are effective.
      Effective mechanisms allow for increases in span of control.
    Geographic dispersion,
      The greater the geographic dispersion, the more time is needed to coordinate thus requiring smaller spans of control.
    The extent to which job design and tools allow direct performance feedback to the employee.
      The more direct feedback from tools, the less reliant the employee is on the supervisor thus allowing for larger spans of control.
    Administrative burdens on each level of management.
      The more administrative burden on management, the smaller the span of control they can manage.
    Expectations of employees regarding development and career counseling.
      The higher the employees expectations and needs, the smaller the span of control.

Of course, the issues above occur in combinations. The exact nature of those combinations and the optimal spans of control will vary from function to function in your firm. Large spans of control in a manufacturing environment make sense based on the above. However, spans of control in knowledge work are often smaller, especially when an integrated approach to a service is required for organizational success. Regardless of what conclusions you draw, spans of control should almost always be larger than those reported by Kearney in the late '70s. The cost of that type of span of control is prohibitive in today's corporation. In addition, since smaller spans of control inevitably lead to more layers in an organization, they also negatively impact the speed of decision making.


Copyright © 2008 Richard M. DiGeorgio & Associates. All Rights Reserved.

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