Span of Control (Lean Management) - [LU]

Definition

In “Essentials of Management: Core Principles, Concepts, & Strategies”, the author defines span of control as “the number of subordinates who report directly to a management.” Span of control also refers to the leanness of the organization, which depends on how many different layers of management a company in proportion to the total number of employees. That being said, an organization that has a smaller ratio of managers to subordinates (with many layers) is said to be fat; conversely, a company that has managers with large number of subordinates (in less layers) is considered lean.

Satterlee, A. (2006). Essentials of Management. Roanoke, VA: Synergistics Publishing.

Summary

Paul Glader is an experienced journalist who currently works for the Wall Street Journal. His specialties include General Electric Company, industrial companies, and management issues. In his article “It’s not easy being lean, “ Glader discusses how a small steel manufacturer, Nucor Corporation, ended up becoming the largest steel production plant based on shipments in the country simply by keeping their organization lean. The author also discusses how maintaining a lean organization is not always easy to do; in fact, as a company starts to grow it becomes near impossible. For the longest time, Nucor prided itself on its three management layers that separated the CEO from the hourly workers. However, they were soon forced to add an addition (fourth) layer to the mix with the placement of five new executive vice presidents. At Nucor, there was a bottleneck begging to develop for the CEO’s time. He constantly had people wanting to talk to him about mergers and acquisitions, development of new technology, and business machine sales people. This is just a small sample of the many vying for his time. When the attention demands from the plant managers were also added in, one can see that help was needed. This was an instance where too lean was causing missed opportunities, increased competition, and inefficiency simply based on limitations of one human being.

The determination of whether or not a company is lean enough can be concluded from profits. In many cases a company that is not lean enough will not be consistently hitting the profit margins they are looking for. The reason for this is because decisions take too long (as there are too many to be made) and time is spent wasted while the lower layer waits for these decisions. Efficiency is increased in Nucor’s lean model because the general managers are able to work with employee input to decide important issues that involve their layer – decisions such as how to set up the work shifts, how to spend maintenance money, and which products to make. This allows for a faster turnaround and also helps boost the workers’ morale as they feel that they are making a difference towards meeting company goals.

Being lean is not always a choice; however, Glader feels that corporations should do what they can to be as lean as possible. Nucor seems to be on the right track, as their profits show. They had to add the new executive layer merely out of necessity. It is important to note that these new Executive VPs are not another blanket layer between the CEO and the workers; rather, each one has a specific role, like chief financial officer and merger and acquisition VP. So in a sense, they are not fattening up the structure – they are merely performing specialized functions so that the CEO can still be in touch with the workers only a few layers down.

Discussion

Many people know that in business wasted time, resources, and work is not part of the profit equation. Many companies do everything they can to reduce waste. However, one of the most important things a company should focus on is not wasting management and time on decisions. A lean structure is essential in increasing productivity and profits. In Glader’s article, he stated that some steel mills that were competitors of Nucor had upwards of 35 layers of management! Once you understand what lean is, having 35 layers of management would seem a sure fire way to have business movement come to a grinding halt. When a decision has to travel 35 levels up and then 35 layers back down that makes for a lot of downtime! However, that does not mean that a company that is fat is bound to fail. As our text pointed out, Peters and Townsend believe that most of the Fortune 500 companies are over-managed, so it is possible to be profitable while not being so lean. However, I would be willing to bet that if they got rid of some management layers, they could cut wasted time and costs significantly thereby increasing the bottom line.

The layers of management differ from business to business. For instance, a small company may be forced to have a fatter structure simply out of responsibility. However, just because a company gets larger does not mean that the number of levels of management need to as well (Satterlee, 2006).

When it comes to the benchmark for using a lean structure, most experts agree that Toyota is the leader in this regards. Glader briefly mentions Toyota’s TPS (or Toyota Production System), which was inspired by the teachings of management expert Edwards Demming. The TPS system aims for the total elimination of waste and mistakes by continually improving the process. This includes total elimination of waste in those regards caused by too many layers of management. In another article, written by Susan Hassler, it is shown that the TPS method works, but only when the entire system is implemented.

In searching for more information on this topic, I found an article that was about how health care was attempting to lean down their structures to eliminated cost both for the company and the consumer, as well as eliminate errors which are literally make a difference in life or death. This article reviewed some shocking statistics on how a lean model makes a huge difference. Here are a few: Toyota was producing a product in 30 percent less time, with 25 percent less defects, in 25 percent less space than its competitors. They did all of this with 1/30th of the materials on hand. In addition to all of this, Toyota enjoys half the absenteeism rate because of the rotating staff and obtaining suggestions from employees 60 times more than a comparable company.

Sure it sounds good on paper, but how easy is it to achieve - That all depends on the situation. Many industry experts state that it is much easier to start a new company lean than it is to turn an existing company into a lean one; although the latter is not always impossible. The bottom line is that quantity does not always equal quality. Before I did this research, I had assumed that the bigger a company was the more managers and levels of management were necessary. However, I was naïve, like many others probably are about this fact. I am now in total agreement that lean is the way to go. I should have known better though. I have worked for start-ups and I have worked for big names like Bell Atlantic with what I perceived to be a fat organization. At Bell Atlantic I always felt like I did not matter – like I was a drone and my work probably suffered for it. On most days, I simply showed up for work and did the minimum amount of work required and went home. I felt like I had more vested in the company than they did in me. My opinion did not matter. However, when I worked for the start-up I found that because I was interfacing with the CEO everyday that we were moving forward together – that I was actually making a difference. I was working extended hours for no extra pay and working on the weekends as well. I was passionate about my work. I never once put two and two together and realized that it was the span of control, not necessarily the size of the company that made the difference. Perhaps I would have enjoyed working at Bell Atlantic more if there were fewer layers to get to the top!

References

Castle, A. (2007, October 31). Lean thinking on the wards. Nursing Standard, 22(8), 16-18. Retrieved January 17, 2009, from Academic Search Complete database.

Glader, P. (2006, June 19). It's Not Easy Being Lean. Wall Street Journal - Eastern Edition, 247(142), B1-B3. Retrieved January 17, 2009, from Academic Search Complete database.

Hassler, S. (2008, May). spectral lines: It's Not Easy Being Lean. IEEE Spectrum, 45(5), 9-9. Retrieved January 17, 2009, from Academic Search Complete database.