From the Ask Tom mailbag –

Question:
You recently described an organization as having five levels. You also said that some organizations don’t need five levels. I am trying to figure out how many levels our company needs?

Response:
Your question is similar to the manager’s span of control issue. The consultant’s answer, “it depends.” The number of levels in an organization depends on the complexity of the decisions and problems faced by the company’s mission. That’s why it is important to occasionally sit down and revisit the mission. We think of mission as “what the company does,” but it also includes which markets, geography of those markets, market segments, governing rules and regulations, availability of labor, incorporation of technology, availability of capital. All of these elements play in to the complexity of the organization.

The initial mission always exists in the individual eyes of the founder. In the beginning, that mission may be modest, simply to prove the concept is viable (minimum viability). With early success, the mission can grow, be redefined as the organization learns more about the environment it created. And we think, with more levels, the more success we see. That is not altogether true. You can have a successful organization at any level, with an appropriate number of managerial levels, even an organization with just one.

S-I (One level of work) – This is the sole practitioner, an individual technical contributor, whose mission is to solve a narrow market problem requiring only one mind, usually supported by technology. Successful sole practitioners could be an artist, writer, even a computer coder developing a single application to solve a market problem. A good living can be had by the savvy sole practitioner, though it is rare to reach any large scale by yourself. (Timespan 1 day – 3 months).

S-II (Two levels of work) – This is the sole practitioner who gathers surrounding assistance. There is too much work for one and that additional work is necessary to solve the problem. At this organizational level that additional work requires coordination for quantity output, at a given quality spec, according to a deadline time schedule (QQT). There is no system yet, because the quantity or complexity of work does not require it. This could be a entrepreneur with a small team. It could also be that the organization requires a system, but does not possess the internal capacity to develop that system. Many successful S-II organizations simply purchase their system from someone else, as a franchise or a license from a larger organization (who has a system for sale). (Timespan 3 months – 12 months).

S-III (Three levels of work) – But even a small franchisee, with one or two stores, who wants to increase to three or four stores, eventually requires an internal system. At three to four stores, an additional level of work appears. It is interesting that one of the larger franchisors, Chick-fil-a only allows one store per franchise. This may be an unconscious realization that the capability of their franchisees is limited to S-II. The hallmark of an S-III organization is a single serial system (single critical path). This is often an artisan craftsman, a subcontractor on a larger project. (Timespan 1 – 2 years).

S-IV (Four levels of work) – Consists of multiple parallel systems that have to be integrated together. S-III as a single serial system is limited in its growth. For an S-III company to scale, it requires the coordination of multiple systems. From its core production system, the S-IV organization also has to coordinate material purchasing, equipment procurement and maintenance, personnel recruiting and training, marketing campaigns, sales efforts, legal review, project management, quality control, sustaining engineering, R&D, human resources and accounting.

S-V (Five levels of work) – This is the enterprise in the marketplace. And, the marketplace is not just about customers. Marketplace includes regulation, labor, finance, technology, competition, logistics, supply chain. This is still within the Small to Medium Enterprise (SME) but also extends to larger organizations.

An organization can be successful at any level, it is governed by the level of their mission.