Org Design: Making 8 by 8 Great Again

The number 8 has long been regarded as the luckiest number in Chinese culture. It contains meanings of prosperity, success and high social status, attributes sought by businessmen across the world. So perhaps the concept of 8 by 8 organisational design (i.e. no more than 8 layers in the organisational hierarchy, with an average management span of control of 8 at each level) is also blessed with the magic of Feng Shui.

I have always been puzzled by this one size fits all notion that 8 is optimum. For instance, I can think of a global organisation which has successfully grown and thrived with 5 levels, namely, the Catholic Church (Pope, Cardinal, Archbishop, Bishop and Priest). A fatuous example you may say, however, the point is that there are many variables as to what constitutes the optimum structure to execute a strategy.

Whilst the benefits of smart, lean organisational design are evident in terms of cost efficiency, speed of decision making, clear accountabilities and improved communications etc., I think that 8 by 8 can at times be a constraint. When taken to excess, ‘8 by 8’ is too formulaic and stifles the organisation’s ability to respond nimbly to changes in its external environment.

Having worked with a number of organisations which applied the 8 by 8 concept, in the spirit of symmetry I have observed 8 potential pitfalls to be avoided:

1. Efficient organisational design alone is not a strategy

Ask almost any of the leading consulting firms and they will tell you that an 8 by 8 organisation design is ‘best in class’. I have seen many such firms pitch compelling business cases predicated on removing inefficiencies from the organisation’s structure. It’s a brave leader who argues against such an ‘obvious’ cost benefit case. I’m certainly not disputing the benefits of thoughtful organisational design, but I have seen first-hand cases where stripping costs in the short-term has been to the detriment of the target operating model in the long term.

Strategic questions around customer retention, winning new business, product/service innovation, revenue growth and sustainable shareholder returns are all too often treated as separate conversations. Having a clear link between the strategy and the overall workforce plan (i.e. talent pipeline and capability requirements by location) should be in place before commencing organisational redesigns. There are many helpful frameworks - Galbraith’s STAR model, Burke-Litwin causal model, Nadler’s updated congruence model and Goold & Campbell’s 9 tests - for working through these critical strategic dilemmas.

Like King Canute holding back the tide I have witnessed a global business services company spending $Bn’s in brutal restructuring over a decade to end up with virtually no net reduction in headcount or increased profitability.

2. Knowledge blind spots

Organisation design programmes are frequently missing in systemic thinking. Focus is often around shaping an organisation to deliver work in an 8 by 8 configuration rather than changing the way work is organised and executed to be more effective. Frequently the 8 by 8 model creates the tacit assumption that processes can be chunked up and efficiently reassigned or made leaner, but misses opportunities to revolutionise the actual design and delivery of the work. Agile working pulls skills and knowledge from the most appropriate resources for effective delivery, and supportive technology, like the Jive social media platform, also have the potential to transform how complex tasks are delivered, breaking down traditional functional silos. Today’s millennials expect to be able to find the knowledge, expertise and advice in real time. Perhaps liberating the flow of knowledge and insights across the organisation is the long-term key to evolving a workforce which makes and 8 by 8 configuration work.

3. The voice of the customer is lost

There is an inherent dynamic tension during all organisational change between the need for internal stability and certainty, i.e. cultural glue of “the way we do things around here” and the need for the organisation to be adaptive to its external environment, i.e. principally markets, customers, suppliers, partners & regulators, to survive and grow.

Large scale organisational redesigns can be extremely disruptive and, like a vortex, take inordinate amounts of time, money and political will. The need for internal stability is pitched against the need to adapt, which can lead to tensions between functions perceived to be ‘winners’ and ‘losers’. In my experience, amidst all this turmoil the voice of the customer can become demuted or even lost. Decisions which ostensibly hit the 8 by 8 metric can have unintended consequences for certain customers and or markets. This is seen when ‘rules’ have to be applied say to every Country regardless of its size, local culture or customer needs. What makes sense for the US, UK and Germany might be totally inappropriate for India or China.

4. The “Jenga” effect

Many of us have played the game of Jenga, with each player carefully removing a block in the structure in turn until it ultimately topples over. Inevitably, an 8 by 8 review can lead to redundancies or increased levels of employee attrition due to people feeling uncertain. It is easy to miss the vital individual or collective capabilities being removed from the structure; let alone the customer relationships and tacit knowledge built up over years of experience.

From a risk management perspective, changes to the structure, and in particular management spans of control, can create circumstances for future failures. These conditions may lie dormant before combining with active failures to bypass defences. For example, the decision to reduce the number of checks, e.g. from four eyes to two eyes, in a bank’s operations could end up as an ‘expensively cheap’ decision, with the actual cost saving being dwarfed by a fine for a regulator breach.

In my opinion, organisations that have a deeper understanding of its skills and capabilities e.g. professions / job families and role descriptions are significantly better placed to make informed decisions around organisation design. Starting with a coherent view of strategic capability gaps ensures that the organisation can be ambidextrous - reducing certain parts of the firm whilst hiring in other growth areas.

5. No designated driver

Regardless of which function initiates an organisational design review, there is nearly always collective enthusiasm at the start of the journey. Just like the ‘Abilene Paradox’ everyone seems to believe the work is valuable, especially if sponsored by the CEO, but realistically many are not fully on board, with objections they feel cannot be raised in case of ‘rocking the proverbial boat. Thus, the business passively chooses not to own the outcomes of the transformation and even acts as a blocker to its success. I have seen real-life instances were HR is working hard to support the business and in turn the business is subtly doing its best to avoid being ‘helped’ by HR, no matter how positive the intent. Three to six months into the project, roles and accountabilities become blurred, with different players and factions becoming frustrated with the lack of traction. Yet, paradoxically everyone still maintains that the destination is worth all the effort; except everyone wishes that someone else were the designated driver.

Alignment of performance objectives together with reward and recognition schemes is absolutely critical at the start of any change programme. When different functions are asked to collaborate on complex transformational challenges, it becomes even more important that goals are shared and aligned at the beginning of the process. Crystal clear ownership and accountability is essential or to paraphrase Henry Kissinger, “who do I call if I want to speak about organisation design”?

6. Fatigued Managers feel like survivors

The relationship between an employee and his or her Manager is the most critical element of engagement, discretionary performance and retention. Like driving, most of us would not admit to being average or even below average; and yet that is the reality of most large organisations when it comes to leadership capability. Whilst the benefits of flatter hierarchies are clear, such advantages are based on the assumption that an average Manager muddling along with a team of 3 will overnight morph into Jack Welch when they have a team of 8 or more.

Managers with enlarged teams can feel a degree of resentment as extra responsibilities are not matched with increased rewards. Additional training and development is often an afterthought and rarely action learning based. It must also be highlighted that the majority in Management roles still have a strong preference for technical/specialist work. Becoming a Manager was the only means of promotion and progression. Few organisations offer a parallel expert career path which is on a par with the Management career path.

7. Knowledge doesn’t flow uphill

Over the past 20 years’ Global organisation have been very adept at transferring work to offshore locations to take advantage of the relative labour arbitrage. Now this advantage is eroding as mature outsourcing countries such as India are waging their own ‘war for talent’.

Transferring processes and technical support functions to the ‘right shore’ has undoubtedly resulted in greater efficiencies. The increasing challenge comes when trying to move roles which require more tacit knowledge and context away from traditional city hubs. The dilemma becomes one of codifying tacit knowledge so that it can be transferred. This takes time, investment and perseverance.

Once individuals acquire greater knowledge, they are nearly always more attractive in their respective market and become a flight risk. This then creates the predicament of having clear career paths available, especially for technical/specialist talent. In some cultures, they expect hierarchical ‘promotions’ early on in their careers, which will be at odds with the philosophy of flat structures. Illuminating the career paths available is both engaging for employees, but also aids the business with retaining its talent.

8. Metrics which mask value

I have sat in meetings where clever managers try and figure out how to improve their average span of control from of 7.3 to 8. What if we count contractors or how about a dotted line reporting to the other side of the world; any ruse to hit the magic number eight.

Tracking and reporting can become seductive in the sense that hitting 8 becomes the focus. Admittedly, these metrics are normally associated with FTE savings; always assuming that a rigorous baseline was established at the start. Too often, I have seen one part of an organisation reduce its headcount whilst another is frenetically recruiting the exact same skills in the market. Alternatively, as fast a headcount is reduced, contractors and or consultants are onboarded to plug gaps as they ‘do not count’!

Measuring all costs including contingent workers is certainly complex, yet it provides greater transparency in the long run. It forces the organisation to have more open and frank discussions about cost versus value and the appropriateness of utilising consultants and contractors for short term non-core work. Alternatively, in an increasingly agile world, it affords an honest conversation around the use of project teams and flexible resourcing models, especially in the IT space.

In conclusion, whilst 8 by 8 provides an effective discipline for thinking through organisational design, it’s not a panacea for guaranteeing a sustainable organisation. For long term success, especially in today’s complex and connected world, businesses should take a more holistic view of their configuration to ensure future health and effectiveness.