How to decide your best number of direct reports
Monday, April 23, 2012/
If senior executives are feeling ever-increasing pressure on their time, why would they add more to their plates? It seems counterintuitive, but according to our research into C-level roles over the past two decades, the CEO’s average span of control, measured by the number of direct reports, has doubled, rising from about five in the mid-1980s to almost 10 in the mid-2000s.
The leap in the chief executive’s purview is all the more remarkable when you consider that companies today are vastly more complex, globally dispersed and strictly scrutinised than those of previous generations.
We’ve uncovered two trends in our research. First, new CEOs in particular are taking on a broader array of responsibilities as they seek a comprehensive understanding of the business and as new technologies allow them to reach more people more directly. But over time they gradually reduce their span of control until the number of reports approaches the old norm. Second, new CEOs are increasingly choosing to go without a deputy. Across industries, the chief operating officer position has faded.
We identified these shifts, along with several related trends, through academic research by Julie Wulf (conducted in partnership with Maria Guadalupe of Columbia Business School and Raghuram Rajan of the University of Chicago’s Booth School of Business) that drew on an extensive database of managerial job descriptions in a large sample of Fortune 500 companies and explored how those jobs have evolved in the past 20 years. Our discussion also integrates insights from more than 30 years of Gary Neilson’s work on organisational change, undertaken with colleagues at Booz & Company and involving CEOs and other executives in more than 250 companies. Finally, we conducted interviews with five CEOs, whose experience provides an in-depth look at how the trends have played out in a variety of situations.
Our goal was to help answer a perennial question asked by CEOs and other senior executives: How much should they take on? It’s a tough question, because so much depends on circumstance as well as on how each CEO manages time. Nonetheless, we uncovered patterns that suggest several guidelines.
Evaluate where you are in the senior-executive life cycle
The length of your tenure matters. You might think that as you gain experience, you should broaden your purview. In fact, the opposite is true. For any senior executive, the first year on the job is a time for learning and assessing. New CEOs are likely to expand their span of control as they set their strategic agenda.
Until the CEO distils crucial information and identifies the company’s star performers, he or she is better off keeping the span of control broad. As they gain experience and enter the steady state of running the organisation, CEOs begin to reduce the number of direct reports and adjust the mix. At this stage they take a relatively hands-off approach to many aspects of the business.
Finally, as they start to think about their departure and move into the succession-planning phase of their tenure, CEOs continue to trim the team, aware that even with their increased experience, they can manage only so many direct reports.
Consider how much time you spend on activities outside your direct span of control
Once you’ve emerged from your initial year or so, ask yourself: are you spending enough time on the strategic capabilities that will make a difference to the business? Are you meeting customers to learn firsthand what they think? Or are you staying too close to the functional areas or business unit you used to lead? This is partly a matter of style: some executives manage by walking around or spending a day each week in the field, while others delegate outside activities and concentrate their time in headquarters. It’s natural to follow your own style, but that doesn’t always lead to the best use of your time. Be aware of how you’re spending your days and how that meshes with the needs of the business; awareness is the starting point of any adjustment that may help you in the longer run.
Consider the scope of your role
Even as many new CEOs are taking on the role of COO as well, fewer are assuming the chairman’s job. If you are acting as both CEO and chairman, your ability to manage a large number of direct reports will be somewhat constrained. Dividing the roles may allow you to take on more functional responsibility. If you decide not to appoint a COO, you’ll have more on your hands and no middle layer to serve as a deputy.
Consider your team’s composition
As the span of control broadens, more and more functional specialists (chief information officers, chief marketing officers and so on) are elevated to the senior team. This is good news for functional managers anxious for a seat at the table. If CEOs aren’t taking on the chairman role, they have more time to devote to business strategy – and our research and experience shows that they’re finding more opportunities to include new points of view in their strategic planning.
What are the few strategic capabilities needed to drive success for the company, or for the portion you lead? Some of the capabilities you need may be new to the company.
Also consider the degree of relatedness of your businesses. Firms with a single business or with closely related businesses typically have corporate centres that co-ordinate activities across business units in order to exploit synergies. The research shows that the more closely related a company’s businesses are, the greater the number of functional specialists in the top team, suggesting that the corporate core becomes more involved in running those businesses.
Ask yourself if you are spending sufficient time and attention helping the organisation execute a forward-looking strategy. Too many leaders populate their team with the usual suspects and include different roles only if there is room. Our advice is to turn this logic on its head: start with the capabilities and roles needed to push your strategy forward.
The changing structure at the top is, in many respects, a response to changes in the environment in which firms operate. It reflects and enables expanded leadership capacity on the part of chief executives. But there are downsides to increased spans of control. In amassing direct reports, some CEOs succumb to the temptation to micromanage or consolidate power. Others retreat to what they know best: supervising day-to-day operations. They become the problem-solver-in-chief, exercising capabilities that may have helped them land the corner office in the first place but are not adequate for leading the entire enterprise. The best leaders stay mindful of the ever-evolving demands of the job and continually tweak their teams as they go.
Gary L. Neilson is a senior vice-president in the Chicago office of Booz & Co and a co-author of The Secrets to Successful Strategy Execution. Julie Wulf is an associate professor at Harvard Business School and has conducted extensive research on the internal governance of senior management in large US firms.
This article first appeared on Leading Company.