UK: WHEN SLIMMING MAY CUT MORE THAN THE FAT. - How long can companies go on removing management layers?

Last Updated: 31 Aug 2010

How long can companies go on removing management layers?

'The impact on employment of organisational restructuring remains as pronounced as in previous years. More than three quarters of restructurings led to job losses at all levels, and more than 70% to the loss of at least one layer of management.' So declared Manpower and the Institute of Management in the summary of their latest annual Survey of Long Term Employment Strategies.

Further, 'the cut in management layers looks set to continue'. But how far can delayering go? Indeed has it, in some cases, gone too far already?

'Companies can often take the first slice out without doing any harm,' says Terry Hill, professor of operations at London Business School, because over the years they have accumulated excess fat. 'In the second and third phases they must reassess and re-engineer': they must decide whether particular kinds of work are key and, if so, who should carry them out. But delayering will continue, Hill maintains, because everything is pressing in that direction. Day-to-day scheduling is best done on the shop floor, where the operator should be responsible for his own quality. IT is making managers redundant by making data more readily available. Delayering may be the only way of reducing overheads, which these days are among the biggest categories of cost.

The shop floor is typically where delayering begins. Supervisors have gone from innumerable factories, where operators are now grouped in teams with working team-leaders. Middle managers (who may be department managers, or sometimes production or technical managers) are following close behind. Alcan Rolled Products in Glasgow, a winner in Management Today's Best Factories Awards in 1993, took out both layers in successive exercises, as works director Bill Morris relates. Shell Lubricants of Merseyside, named best process industry factory last year, has been through a very similar procedure.

It now employs only three levels, including David Fletcher who runs the operation, in fewer - and bigger - departments.

Yet delayering has its critics, not counting the displaced middle managers.

It frequently means a heavier workload - and more stress - for those who remain. Therefore, argues Lance Lindon of PA Sundridge Park, 'to keep up morale you must treat survivors very well'. A consequence of this is that while productivity picks up, profits do not, necessarily. So you have another downsizing and delayering next year. 'It's a lovely vicious circle.' And while removal of middle management layers is certainly good for downward communication, says Lindon, 'upward communication is not likely to improve'.

Will Hopper, who runs a consultancy called CCS Institute (the initials derive from General MacArthur's 'civil communications section' which played a significant part in reviving Japan's economy post-war) would agree with that. Hopper points out that Japanese business has not responded to recession by downsizing and delayering in the Anglo-Saxon style. Even though the Japanese pioneered teamworking the role of middle management has remained critical, he says, in particular that of the bucho (factory manager) and kacho (usually translated 'section manager' and roughly equating to assistant plant manager - 'but with much higher prestige').

The kacho applies company policy in relation to his own products and is a vital link with R&D, with suppliers, etc. He also plays an important communications role. Indeed he is the main conduit of upward communication.

Without him top management would be dependent upon unreliable secondary channels. The Japanese inhabit a different culture, counters John Stopford, professor of international business at LBS. Their management system works well, he agrees, although - under present circumstances - at a price. 'The firm can evolve slowly and very, very effectively, but it cannot change rapidly. The bucho is part of the delay loop.'

When the industrial economies are all enjoying buoyant conditions simultaneously, we may be better placed to judge whether middle managers really do justify their existence.

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