How many levels should an organization have?

When there are too many levels in an organization, roles become compressed and when there are too few levels, authority and decision-making can occur in a vacuum.  Common complaints from employees are: “It’s not clear who’s responsible for making decisions”, “everything seems to be so bureaucratic”, “my work overlaps so much with what my boss does, I don’t know what I’m responsible for”, “honestly, I have a lot of free time”, or “my manager is so far removed from my project that he can’t provide any value”.

What is the ideal number of levels in an organization?  Is it dependent on the size of the organization?

In years of research conducted by Elliott Jaques, a well-known psychoanalyst and organizational psychologist in the 20th century, he concluded that the right number of levels of an organization is determined by the complexity of work of the most senior role. Each role has a “responsibility time span”, meaning the time it takes for the longest task to be completed for that role.  He concluded that the time span increments were 1 day, 3 months, 1 year, 2 years, 5 years, 10 and 20 years.  For example, if the CEO for a small company is responsible for activities up to 5 years, then there should be a maximum of 4 layers below the CEO (i.e. to reflect the time span increments of up to 1 day, 3 months, 1 year and 2 years).

Elliott Jaques’ research is interesting and thought provoking.  What I have seen most often in organizations is a tendency towards role compression.  In one example, the VP or head of a department was responsible for providing the global strategy and guidance for the team. The next level below was the Directors who were responsible for several client groups globally and translating the strategy into implementation.  There were several Manager level colleagues who were also assigned a client group and they reported into the Directors so that the Directors would have managerial responsibilities. In some cases, a Director would have only one direct report/Manager reporting into him/her.  The roles of the Directors and Managers overlapped significantly and there was discontent amongst the Managers since they did not see any value add from their Director.  In fact, the Managers saw the VP as their true manager.

Many times, the current organizational structure is in place as a continuation of the status quo, to fit an outdated workflow process or to appease an employee. When reorganizing a department or creating an organizational structure, managers need to first ensure that the proposed organizational structure is aligned with the strategy of the entire organization and how the work is delivered to the external market and customers. When determining the number of layers, think about the roles needed to deliver the service or product in an efficient manner to customers.  How different are the roles?  What are the objectives for each role? Is there any overlap with the roles? Is each role adding value? The best way to determine if there is compression is to ask the questions above to the employees in those roles.  Based on the feedback, managers will be able to tweak the organizational structure to a more efficient one.