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Does your business have too many managers and too few workers? Unfortunately, it’s a common problem.

Companies have become more top-heavy in the past several decades. According to a survey by Harvard Business School, the number of managers reporting to the CEO in Fortune 500 companies has doubled, from an average of five direct reports in 1986 to an average of 10 today.

Yet this top-heavy structure can cause serious organizational problems, including missed opportunities and hemorrhaging talent. Managers tend to get paid more than their direct reports, so they add overhead — often without corresponding output.

A multi-tiered management structure can also hinder innovation because ideas stall out in layers of approval. Top-heavy companies can also have trouble holding onto employees — few people are willing to work in an organization with five, 10, or more managers weighing in on their performance, critiquing ideas, and insisting their project is the top priority. As a result, they either leave the company or, worse, stay and become disengaged.

So what can you do if your company’s antiquated organizational structure is holding you back?

Focus on your long-term goals

When you start thinking about redesigning your organization, it’s easy to focus on what’s wrong today. But rather than getting bogged down in today’s frustrations and complaints, focus on your long-term vision and strategic plan.

Whether your goals include revenue growth, reducing overhead, or expanding into new products or markets, make sure your restructuring plan will support those goals in the long term. Otherwise, today’s changes could just create a new set of problems down the road.

Understand the current state of the organization

How does your organization currently operate? You may think you have an idea. You may even have an organizational chart. But is that how things really work?

According to a study from McKinsey, 60% of executives report not spending enough time assessing the state of the organization ahead of a redesign. As a result, they waste time and resources restructuring based on out-of-date information.

Take some time to assess the existing hierarchy: how decisions get made, how initiatives receive buy-in, and who employees really answer to. Then you can be sure you’re building from your actual starting point — not an outdated organizational chart that’s not worth the paper it’s printed on.

Create a communication plan

People don’t like change. So if you spring organizational restructuring on your team, prepare for fear, resistance, and outright opposition.

To avoid that fate, come up with a communication plan long before you make the first major decision. Explain why, how, and the specific reasons for the restructuring to help people understand why it’s necessary.

Many companies avoid such transparent communications — especially when the restructuring involves layoffs. But in the absence of information, people tend to assume the worst. So share what you can frequently and clearly to build trust and hold onto your best talent, especially at a time when employees are leaving their roles in droves.

Focus on abilities rather than roles

Whatever your organizational structure, your company is only as good as the people within it. And people perform their best when their skills are aligned with their jobs.

In a concept known as the Peter Principle, competent people get promoted beyond their level of ability. You see this happen when technically competent people are promoted to management, even though they don’t have the soft skills to be effective managers. As a result, everyone suffers.

When restructuring, don’t focus on job titles but on the requirement of each function and the unique skillsets that will make the person in that role successful. Perform skills assessments for each person and use this data to guide restructuring decisions.

Of course, it can be difficult to get a person to willingly let go of a role or title that doesn’t fit them. But that’s a challenge that every growing company has to deal with at some point.

Stay flexible

Your organizational structure is never set in stone. As you implement your restructuring plan, you may discover that some people you thought would stay are moving on while others you’d planned to let go are more valuable in a new role.

You may realize that not filling a role you initially thought was crucial frees up resources for other initiatives, such as reducing debts or taking advantage of new opportunities.

Don’t get stuck on a vision of your perfect organization — it doesn’t exist. Instead, remain flexible and responsive and update your plan as you go along. 

Going through restructuring is never simple or easy. But it can be an opportunity to assess your organization’s strengths and set you up for a better future. Following the steps above will increase the odds of a successful outcome.

About the Author(s)

 Ting  Pen

Ting Pen is a ValuePenguin Co-Founder. She previously evaluated corporate mergers and acquisitions as a Financial Analyst at Citigroup. Her experience in financial services combined with her entrepreneurial spirit allowed for her to start her own fin-tech company. Her passions lie in problem solving, growth, and travel.

Co-Founder, ValuePenguin.com
Team Restructuring