May 21, 2012

Importance of Appropriate Reporting Structure

Many organizations fail to understand (or feign ignorance to) the harm caused by faulty reporting structure. The emphasis in such organizations is on who has got the fanciest title of all (EVP, SVP, VP, AVP and "XVP") which unfortunately depends to a little part on competencies and job performance and to the most part on factors like years with the company, years in the current role, loyalty factor, years of experience.

What one gets in such organizations is a poorly contrived and artificially enforced reporting structure that gives a feeling of control to the owners and top executives but leads to a lot of resentment from the good performers who eventually quit resulting in loss to the organization. The owners and top executives in such cases prefer to remain in control rather than see the organization grow.

This in a few years may result in a top-heavy organization (the number of people managing per person doing the ground-level work shoots to an unhealthy ratio) and a VP doing manager-level work (due to successive promotions where the title becomes fancier at each promotion but the increase in the accountability and complexity of work is none or negligible). Because of less formal structures, more emphasis on loyalty factor and limited scope and scale of work this situation is much more prevalent in small-sized organizations as explained in Old Boys Club in Small Companies.

Some examples of faulty and inappropriate reporting structures are given below:
  • An executive role has a cocktail of reporting from individuals at various levels lower down in the organizational hierarchy (such as team leads, managers, senior managers and AVPs)
  • Only trusted lieutenants are allowed to become part of the leadership team and the real lieutenants report into the top executives through the trusted lieutenants
  • Top-level inter-group meetings are attended only by the trusted lieutenants (loyalty triumphs over effective decision making)
  • The real lieutenants have accountability sans adequate authority leading to delays in decision making and sub-optimal decisions (since the final call is always by the trusted lieutenant)
  • The real lieutenants are stuck below the glass ceiling. And this makes many of them to quit as explained in Why New Hires May Quit Early On!
So what is an appropriate reporting structure then? It depends on the business context in which an organizations operates. It also depends on the degree of control the owners and top executives choose to exercise. However, it can be said that in the long term interest of the organization any reporting structure that plugs the holes in faulty and inappropriate reporting structure as described above is an appropriate reporting structure.

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