Delayering is potentially one of the strongest measures to reduce administrative overhead costs in your organizational structure. As an additional advantage, delayering often helps organizations to make faster decisions and become more effective overall. A number of key criteria can help you to determine whether you should review and adapt your spans and layers.
Delayering means that you cut at least one management layer from your organizational structure. An organizational layer is hereby defined by its primary reporting relationship. For example, the executive board reporting to the CEO is one management layer. The individual executive board members’ direct reports form a second management layer - and so on. The lowest organizational layer can be, for example, and depending on the kind of organization, frontline workers who report to first line managers and who do not have subordinates.
A simple analysis of spans and layers
This simple definition of delayering can already help you to run a basic analysis of your spans and layers. You can do this by counting the management layers between the CEO and the frontline, and capturing the data in a common Excel sheet. Note that typically in larger organizations with multiple business divisions, the emerging picture will diverge between units. This is because divisions with multiple functions add middle management layers in varying degrees and for different purposes (which, taken on their own, may have made perfect sense initially and from an isolated perspective, but overall can increase organizational fragmentation).
Is delayering an opportunity given your current organizational structure?
When you review the layers of management in your organization, you can then start to apply a number of key criteria and principles for spans and layers to evaluate if there is an opportunity to delayer management in your business.
The criteria included in the “Define spans and layers” tool in the Organizational Structure Kit allow you to evaluate the functional justification for an organizational layer. Using the criteria, you can assess, for example, whether a management position within the hierarchy promises to bring higher levels of competence and experience to the organization’s decision-making or not. Another question to raise is whether there is a net benefit in coordination capacity associated with a layer, or whether it adds to organizational friction and fragmented decision processes.
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An organization with only a few layers of management will have larger spans of control. This means that organizational delayering may be at odds with what is considered an optimal span of control by an individual manager.
Because of such trade-offs, we always recommend having a dedicated review that uses these principles to look at the specifics of an organizational structure, rather than just comparing delayering examples from other businesses. This is a particular risk when downsizing and delayering are considered in isolation, without taking overall organizational effectiveness into account. Best practices for spans and layers means not taking shortcuts, but doing the delayering analysis in your concrete case - otherwise the benefits of delayering may not be realized and could even turn into disadvantages.
Continue reading on organizational performance and efficiency:
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Three essential steps of any cost reduction strategy: Cost cutting strategies must not be limited to analyzing and adding up the potential effects of cost saving ideas. Instead, leaders, cost reduction consultants, and expense reduction analysts have to think through and execute three essential process steps in order to achieve cost cutting success.
How to get rightsizing right: Five key imperatives: Rightsizing, in contrast to downsizing, takes a proactive, long-term view of a company’s cost position. This blog post discusses five imperatives to consider when embarking on a rightsizing initiative.
Overhead cost reduction: Reviewing your organizational structure frequently shows two important levers that can reduce your overhead costs.