What is the right number of direct reports
for any incoming C-level executive? A new diagnostic tool can provide the
answer, based on each leader’s situation and strategy.
Choosing
the right executive leadership team is one of the most important decisions that
a C-level executive can make. Many leaders populate their teams with the “usual
suspects”: people who have been on the top team a long time, seemingly entitled
to a place there by virtue of their positions. Others are added only if there’s
room. In our article on top teams (“How Many Direct Reports?” Harvard Business
Review, April 2012).
Harvard
Business School professor Julie Wulf and I advised executives to turn this
logic on its head: “Start with the capabilities and roles needed to push your
company’s strategy forward.” In other words, your top team’s members — drawn
from some of your current direct reports, along with appointees to new
positions that you create — should together be accountable for all the
capabilities that shape your company’s distinctive edge and enable you to win
in the market.
Even
with that criterion in mind, it’s tough to get the size and composition of your
top team right, especially given all the competing priorities that senior
leaders face today. This is particularly true when you first come on board in a
new position. The territory is often uncharted, your predecessor’s experience
may be irrelevant to your most pressing challenges, and reflective time is
sorely lacking.
Without
guidance, and with few unbiased stakeholders in your immediate circle, you may
end up relying on guesswork, gut instinct, or rules of thumb that have little
to do with your actual needs.
The
result? Too many or too few people reporting to you, with other peoples’
competing priorities setting the terms of your discussion.
If you
are a senior executive pursuing a coherent strategy, you need a span of control
that is “fit for purpose.” Each voice at the table is a signal to the rest of
the organization about what you consider important. Each represents a strategic
capability needed to drive success for the company, or for the portion of it
you lead.
Hence
the need for a high level of rigor and objectivity in choosing the leadership
team. Identifying the right number of people, articulating the roles and
functions that have strategic importance, figuring out who should be a direct
report, and deciding whether you need an operations chief are vital decisions that
impact your effectiveness. An important first step is determining the right
number of team members.
Booz
& Company’s C-Level Span of Control Diagnostic Tool, at booz.com/c-levelspan,
enables you to determine a target span for your top team, based on the criteria
most relevant to your particular situation. This insight can replace some
time-honored conventions that have little to do with your actual challenges.
For
example:
-
The
assumption that seven constitutes a kind of magic number, when the particulars
of your situation may actually require a larger or smaller leadership team
-
The
common practice of using metrics such as the number of employees or total
revenues of a unit to determine whether its head should be your direct report
-
The
belief that appointing an operations chief will buy you breathing room so you
can focus on the big picture
These
conventions are largely irrelevant when it comes to assessing your real needs,
and they may draw attention away from the factors that matter most. For
example, where you stand in the executive life cycle needs to be a key
consideration. If you’re new to your position, you will probably need a
comparatively large leadership team of up to 10 to 12 direct reports.
This
will help you evaluate your top people, work with the team to chart the
strategic direction, and increase your exposure to more aspects of the
business. If you’re near the end of your cycle and are focused on succession,
you can probably be more hands off and will benefit from having a tighter team.
When
you create more full-business P&L roles for one or more potential
successors, your span of control naturally becomes smaller. Given these
differences, it’s also worth keeping in mind how your span of control may need
to shift in the future.
Another
key consideration is the amount of cross-organizational collaboration your
enterprise requires. If business units are highly related, there will be more
collaboration and joint issues that come up to the top. If the units in your
organization operate more independently — for example, if yours is a large and
diversified holding company — this structure would enable you to handle more
direct reports. The units themselves would act as relatively self-contained
businesses, and your role should be focused on longer-term direction and
financial investment choices and performance reviews.
This
level of cross-organizational collaboration is also influenced by global reach.
If your company has widespread business operations, with offices in a number of
countries, it will require more integration and collaboration (and therefore a
larger span of control) than if you do business in a limited number of locales.
You
also need to consider the proportion of time you spend externally. If direct
interaction with customers, industry associates, or regulators is a major part
of your job, you’ll want a smaller span of control, allocating more
responsibility to your direct reports to free you to assume a more external
role. If most of your time is spent on working internally with the team, you’ll
be set up to handle a broader span so you can keep on top of what your units
are doing. This is particularly important if you’re undertaking a
transformation.
If
you’re a CEO, you’ll also need to decide whether to appoint a chief operating
officer. COOs are often put in place for succession reasons — the position is
used as the grooming post for the next person to step into the top job. They
have also served as span breakers, managing specifics so the CEO can focus on
the big picture.
Key
considerations when deciding whether to appoint a COO have traditionally been
the organization’s culture and the CEO’s individual style, although the most
relevant consideration is whether you also hold the job of chairman. If so, a
COO can make sense. If not, you may find the role less than helpful. A span
breaker can also serve as a filter and a way of insulating the CEO from direct
managing responsibility, as well as needed information. To make the right
decision, you need to take all these factors into account.
As you
work with the span-of-control tool, bear in mind that, in addition to being a
diagnostic, it has been designed to help you learn. Answering the questions in
the drop-down menus under each bar gives you a way to think about what criteria
are most useful, given your particular challenges.
The
diagnostic is useful in helping you determine the target size of your
leadership team. Its real purpose is not to give you a more customized number
but to provide you with a way to assess what parameters should shape your
decisions. You can also use the tool to revisit your needs as your situation and
goals change over time.
Some
questions in the tool are more important than others in helping you determine
the size and composition of your leadership team. We’ve designed the algorithms
to reflect the relative importance of these factors, based on evidence of what
has worked best for CEOs and other top executives.
Determining
the right span of control — the right people, the right number of people, and
the right structure — is vital to your success on the job, but it is only the
first step. In implementing the right balance, even the most skillful
executives can make mistakes. But a diagnostic like this can help you avoid
many of them. Top team design is not an exact science, but there’s no need to
fly blind. As you answer the questions and consider the results, you’ll get a
clearer sense of what matters most.
Gary L.
Neilson
strategy-business.com
Business & Investment Opportunities
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