How many managerial levels does your organisation need?

Potential capability of a manager

The optimal amount of managerial levels inside an organisation can be determined with the help of Requisite Organisation theory developed by a Canadian psychoanalyst, social scientist and management consultant Elliott Jaques. Elliott Jaques (who also coined the term “midlife crisis” in 1965) is one the most original thinkers in the fields of psychology, organizational development and theory of management. According to Requisite Organization theory, managers should be evaluated and promoted not by traditional metrics – IQ, motivation, personal traits. Instead, organisations should consider how people make decisions and plan their actions in uncertainty.

The longer it takes to complete a task without supervision the higher the level of cognitive complexity, acquired skills and knowledge required to operate in such environment long-term. In other words, the longer the time-span of discretion, the higher the potential capability of a manager, as she can handle the higher amount of complexity when making decisions. Jaques argued that the higher a person was positioned in a hierarchy, assuming the individual possessed a corresponding level of cognitive complexity, acquired skills and knowledge (gained through experience) and presuming that individual valued the work (s)he was tasked, the longer (s)he could work to complete a task without supervision. Jaques also has proved that everybody has a comfortable discretion time span. After working with hundreds of people Jaques was sure that the ability to plan and execute complex plans improved with age, unlike other cognitive skills and the sooner the initial level is reached (usually in ones’s twenties) the faster the development. This author defines seven levels of decision-making. We change levels once in 12-25 years.

Levels of decision making

Work can be defined as the process of application of knowledge, skills and intellectual abilities for making decisions and planning actions to achieve set goals ("What-By-When"). Each job should have its own main objective defined in terms of desired results and terms and connected with the main objective of an upper manager.

  • On the Level I decision are made based at the information at hand.
  • Operating on Level II requires cumulative thinking – the person makes decisions based on complex factors.
  • On the Level III a manager can think in terms of cause and effect and predict not only immediate, but also distant consequences.
  • Working on the Level IV requires thinking on several interconnected areas.
  • On the Level III a manager can think in terms of cause and effect and predict not only immediate, but also distant consequences. Level V and up require a manager to think globally and consider very distant consequences of decisions

Requisite Organization

According to the Requisite Organization theory hierarchy in any organization should correspond the levels of time-span and decision making. The principles of Requisite Organization have been successfully used in hundreds of organizations across the globe. Organizations of any size should have no more than seven levels of hierarchy. Any new level should add value and require the work with a different time span discretion and complexity. The top-managers could use the Requisite Organization model to jobs and reporting structures that will help companies to achieve its goals .It also greatly simplifies the training and development process of high-potential employees and managers.

Complexity of job and complexity of information processing

Developing high-potential employees and promoting people based on their skills/competencies/adherence to corporate values would regularly generate immature managers. So it is better to use complexity of information processing as a main criterion for defining potential. This can be measured for every employee and predicted for several years ahead.

Situation 1:dynamic stability that can be maintained long-term. This situation has the following characteristics:

  • high level of motivation,
  • maximum performance,
  • optimal ROI.

Situation 2:acceptable for high-potential employees preparing to ramp up in a new role. The following happens:

  • overpaying for potential – as the one and only way to keep people,
  • boredom at the workplace,
  • people start leaving.

Situation 3: if the time-span of discretion of the manager is lower than required it would have negative effects for all levels below. If this happens with the highest-ranking executive/CEO, it means that the whole organization is at risk:

  • effective execution of long-term goals is impossible,
  • it is hard to find and keep strong candidates, which worsens the situation,
  • the manager is facing stress, health issues or fears to be fired,
  • this is the worst situation possible and there are only two possible solutions: lowering the expectations for the unit or change of leadership.

"The real boss"

The real boss according to Jaques is the person an employee turns to get decisions crucial to the continuation of their work. She/he should be one strata above the employee.

Situation 1 “Optimum”: the distance between a manager and a real boss is perceived as comfortable. Each of them is focussed on tasks in their zones of complexity.

Situation 2: “Compression”: if complexity and time spans of discretion of the employee and the manager equal, they won’t get along.

  • E can’t delegate tasks properly to F, is lost in details, slows the decision-making process,
  • F considers D as her “real boss”,
  • E competes with F,
  • E and F work below their potential,
  • G doesn’t understand who his/her boss is,
  • solution: significantly reconsider one of the roles, move it to another level or cut it.

Situation 3: “Gap”: H and I don’t understand each other:

  • H has to dig into details, she/he doesn’t have time to work strategically,
  • H thinks that I “doesn’t understand what has to be done”,
  • I thinks that H is distracting him/her from real work talking about things that are too abstract.

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