While there are many organization design factors, research has consistently found one factor, by itself is directly related to an organization’s financial performance, customer satisfaction and employee satisfaction.

And what is that factor?

It is the alignment of the manager-direct report relationship. Specifically, every employee should have a manager who is working at exactly one level or stratum (the more precise technical term) above him or her.

Determining Manager–Direct Report Alignment

Basically, there is a universal pattern of strata of work and each stratum is different in the nature of the work, the complexity of the work, and the information processing capability that one requires to operate successfully at this level.

For example, at Stratum 1, the roles include front-line employees in call centres and manufacturing. The work is proceduralized, and employees are required to solve problems within relatively clear boundaries.

At Stratum 2, there are professional and first-level management roles. The work is more complex, is not proceduralized, and requires individuals with a higher level of capability, specifically diagnostic capability.

Each higher stratum has progressively more complex work and requires individuals with progressively higher levels of information processing capability. Both the complexity of work and an individual’s capability to process information can be measured.

At Capelle Associates, we have developed methods to both measure and improve the alignment of manager – direct report relationships. This has evolved from the original work of Dr. Elliott Jaques.

The ideal situation, therefore, is to have a manager exactly one stratum above a direct report, both in terms of the complexity of work done and the individual information processing capability required to do the work. This creates a situation where the right work is done at the right stratum, and the manager is appropriately positioned to provide real management added value.

How Sub Optimal Manager–Direct Report Relationships Reduces Effectiveness and Wastes Money

Our research and client experience shows two situations that can reduce effectiveness and waste money.

The first situation is called compression and arises when the manager and direct report are actually operating in the same stratum. The symptoms of compression include having a manager who is micro managing and a direct report who is frustrated that she/he is not be able to use her/his full capability. This is a waste of human resources and money. The manager is not adding real management value, and the direct report is frustrated that she/he can’t use her/his full capability.

The other situation is not discussed as much. This situation is called a gap and arises when a manager and direct report are more than one stratum apart. The symptoms of a gap include having a manager who believes that the direct report does not have enough initiative and a direct report who feels that she/he is not given sufficient direction. This is usually treated as a performance problem of either the manager or direct report(s), but it is actually a structural problem since there is a missing role. This situation is often created through downsizing that is done without appropriate assessment of strata of work.

While compression is a waste of money, gaps can kill an organization.

The classic example is the collapse of the Barings Bank in the United Kingdom several years ago. A 27-year-old futures trader in a gap situation brought a 350-year-old bank to ruin.

How often do these three situations (ideal, compression and gaps) occur? Our research on over 25,000 manager – direct report relationships shows that the ideal situation (manager exactly one stratum above a direct report) occurs only about 50% of the time. Compression (manager and direct report operating at the same stratum) occurs about 38% of the time. Gaps (manager and direct report more than one stratum apart) occurs about 12% of the time. Further, these situations are scattered across organizations, and are not neatly found in just one or two areas.

Hard Won Business Wisdom

The manager–direct report alignment is the spine of the organization.

If the spine is misaligned, everything else will be suboptimal. This includes clarity of accountabilities and authorities, matching people to positions, communication and project work. This will weaken the delivery of strategy, objectives and projects. This broad impact is the reason that manager–direct report alignment is so powerful, and by itself is directly related to organization financial performance, customer satisfaction and employee satisfaction.

The good news is that organizations can improve the alignment of their manager–direct report relationships and achieve the related performance improvement.

To do so, we have found that the following steps are critical:

• Understand the organization strategy and business plan and the implications for both the current and potential future organization designs.
• Assess the complexity of work currently completed by each role or position.
• Determine current manager–direct report alignment and opportunities for improvement.
• Design the optimal organization, including both vertical and functional alignment of roles or positions.
• Ensure that the design is robust and flexible enough to meet both current requirements and future directions.
• Use a Talent Pool approach to optimally match people to positions.
• Ensure the necessary supporting mechanisms such as clarifying both managerial and cross functional accountabilities and authorities.

Email us at info@capelleassociates.com, or call us at
416-236-3044 to learn more about how you can use Organization Design to further enhance your business
success.

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