Recently I’ve been in a conversation with a friend on the challenges of big organizations, when it comes to structuring an effective reporting structure and drawing an org-chart.
I’ve brought to the table my personal experience in Cisco, while my friend has suggested to aim higher and look into huge organizations like Walmart or McDonald’s.
Doing some research I’ve found out that Forbes, in 2017, listed Walmart, at 2.3 million employees, as the biggest private employer, followed, in second position, by McDonald’s with 1.9 million employees (including franchised locations around the world). We were puzzled by a simple question: how can you draw the org-chart of a 2 million employees company?
In 1996, when I joined Cisco, the organizational structure of the sales teams was incredibly effective. Each team leader was managing 6-8 reports. And then we applied a “divide and grow” approach. As soon as the team was generating enough revenues to justify a new hire the team received a new job position to be filled in. When the team reached the 8 people mark the manager had to split the team in 2 teams, nominate a new team leader for the newly created team and go back to growing the business.
This was like applying the Amazon’s concept that if you can’t feed a team with 2 pizzas than the team is too big.
My friend objected that this model was not applicable to organizations as big as Walmart, so we engaged in some simple math.
Should we communicate more?
One of the reasons I believe the Cisco model was so effective is that the quality of the communication between team members deeply impacts the effectiveness of the team. And let’s be honest. Usually communication sucks. Now if you manage a team of 6, the possible one-to-one communication paths in the team are 30.
Basically if you have a team of n people the number of paths connecting all the team members is n*(n-1)/2. This helps understanding that a team of 20 people has a lot of overhead going on into not effective communication, as the number of paths is 190.
A quadratic function suggests to keep the number of team members as small as possible. It is the same reason why, in the army, for maximum effectiveness, the special operation forces tend to organize in groups of 16. 2 officers and 14 soldiers. Being so, they are ready to split into 2 teams of 8 or 4 teams of 4, when requested by the circumstances.
Luckily enough, for companies like Walmart, with 1 CEO, 8 levels of reporting and teams of max 8 employees, you can draw and org-chart with close to 16.8 million (8^8+1) employees in it.