Thursday, 12 April 2012

Non-Executive Directors should question organisational structures.

This is not meddling with executive responsibility. Structures that give managers too wide a span of control create risk and this falls under a NED’s governance responsibility. Remuneration Committees need to ensure that they are not paying more to fewer executives, within flawed structures that are bound for future failure.

How quickly are your international thoroughbreds heading towards the knackers yard and what are your NEDS doing about it?

As costs rise and margins fall, many multinationals are cutting the number of mid-level executives; removing general managers and replacing them with remote, functionally-based organisations - matrix structures without local oversight. The remaining executives inherit a growing number of direct and indirect reports, increasing their supervisory workload regardless of time-zone and culture. Knowledge and complexity of diverse markets and technologies do not seem to matter. Performance is increasingly measured through automated dashboards and brief update calls.

Can you imagine what it is like for someone with 16 direct reports spread across the globe? More importantly, can you imagine what it is like for the 16 subordinates? Yes, they are all experienced professionals who enjoy considerable “freedom to act”, but at what point does supervisory support and governance responsibility start to suffer?

In organisational design and Hay job evaluation, 5 to 8 reports used to be the norm. The number tended to be lower when there was real functional diversity and higher when the roles were significantly similar. The “span of control” was higher for a General Manager than a Regional Sales Director, so it was not unusual for the latter to have more direct reports.

When results are exceeding expectations and delegation is running smoothly then all is well, but in recession and difficult markets, performance can be hard to sustain over the long term. The pressure builds as results fail to meet targets. Executives should now be monitoring their team more closely, but they do not have the bandwidth.

Both parties “buy time” with international calls in the middle of the night – broadcasting information rather than sharing critical factors for success. Over time, this supersedes vital coaching, mentoring and sharing of experience.

NEDs should ask their remuneration and audit committees to question the human and financial risks associated with these international matrix structures.

1 comment:

  1. Well done Michael! Please join my blog too. It's URL is