I often get asked how we go about the process of converting small businesses into properly structured companies. We become involved in this process when clients’ businesses reach the size where they can no longer be run as ‘dictatorships’, or when our clients want to run their businesses in multiple locations.
Over the years I’ve formulated a set of guidelines that I follow when I plan the restructuring process. The same rules should apply for small or large companies, or even corporations.
To begin, it helps if we step back and consider what we are trying to achieve. Your business structure should be capable of handling the operational demands of your business now and for the next five years or so, and be flexible enough to react to rapid changes in market fashions or economic environment. It should also deliver the Owner an acceptable lifestyle. Compare the following guidelines with what you have in place in your business — I may get you thinking:
The ten rules for business structure
You must have a realistic business plan covering the next five years. A basic issue, but often lacking. Where do you want your business to go? Without a plan your business is like a rudderless ship, and it becomes almost impossible to unite your staff with a common vision. This can result in huge losses in productivity.
Your pyramid must be as flat as possible. The more layers you have in a business, the more you complicate communication and bind your staff with bureaucracy. I believe the ratio of ‘chiefs to Indians’ should not be more than 1:4 in any organisation. Chiefs do not earn income, they are an overhead cost to your business — keep their numbers to a minimum and push authority down to those who are doing the work and dealing with the customers.
There must be a clear distinction made between supervision and management. Supervisors should run the day to day affairs of your business, i.e. they should control the teams who do the work that your business derives its income from; a supervisor is concerned with today, tomorrow, next week and a few weeks into the future. A manager is concerned with the long term growth and development of your business, and is concerned with the time period from one month to five years ahead. These responsibilities are separate, but interlinked. Commonly, when a business is structured badly managers and supervisors trip over each other trying to do the same job, while nobody is looking after the big picture and thinking ahead.
Everyone must only dance to one master. Your reporting lines must be clear and everyone should have only one ‘boss’. For example, it is not acceptable for a manager to bypass a supervisor and direct the line staff; this creates divisiveness and confusion. The standard test to see if you have clear reporting lines is to ask any member of staff: ‘Who do you work for?’. If the answer is unclear or the staff member nominates multiple ‘bosses’, you have a situation where productivity will be lost and staff turnover will be higher than necessary, due to confusion and conflicting instructions. Draw a distinction here between ‘reporting to’ and ‘shift supervision’. When you report to someone they are responsible for your training and development, performance appraisal and general discipline. A shift supervisor is the person in charge of a shift — the staff on that shift may report to someone else.
Everyone must know exactly what their job is, and how they are judged. This issue is simple: How can you kick a goal if the goal posts are not stationary and visible? In a well structured business you should be able to walk up to any member of staff and ask: ‘What exactly is your job, and how does your superior judge if you are doing your job well or not?’, and get a succinct answer. In the absence of staff having this information, productivity will be lost, conflict will arise and performance assessment will have to be based on a subjective rather than an objective basis.
Job Descriptions should be based on responsibilities, not tasks. A Job Description is not a task list or a duty statement — rather, it defines responsibilities and forces an employee to take control of their own performance. I’m assuming here that you have them in the first place. If not, you’re missing the most important document in the whole of management. A job description provides a common platform for recruitment, training and supervision.
In order to make a manager or supervisor accountable, you must allow them to choose who comes into their team and who leaves their team. The responsibility for staff recruitment (and training) must go hand in hand with team leadership, otherwise team leaders have the perfect excuse for the non performance of staff: ‘I didn’t hire them,’ or ‘I didn’t train them.’ This is a tough one. Many managers and business owners don’t trust their supervisors to recruit because they’ve never trained them to do it.
The 10 to 1 rule must be adhered to. Each manager or supervisor should have no more than 10 people reporting to them. With any more, control and personal development becomes difficult.
Regular, objective performance appraisal must be carried out on all personnel. Monthly informal performance appraisal should be the primary tool for the direction of a medium sized business. It should constantly refer back to the responsibilities defined in their Job Description and should set clear, challenging goals.
I’d love to lay claim to all of these principals, but they are a summary of the ideas of many experts, together with my own observations of business success. I hope they provoke some thought.