Over the past few months I've been working with two very
different companies. One is a small Internet-based financial services -
fast-moving, New Economy, single digit millions in revenues, privately held. The
other is a gargantuan health care company with double-digit billions in
revenues, over 100 separate profit centers spread around the country. Executive
compensation is greater than the GNP of some members of the United Nations. It
is a publicly held company with a stock that's appreciated 80% above its low due
to some remarkable turnaround efforts.
- Question Number One: Which one of these companies has the larger top
- Question Number Two: Which one of these companies has the most effective top
I've worked closely with the top management teams
of both companies. Both teams have some very bright, energetic, ambitious people
on board. The top managers in the Internet company are young, think they are
experienced, ruthless and motivated by stock options. The top managers in the
health care company are older, know they are experienced, ruthless and motivated
by the potential promotions - and the chance to make their under-water stock
options worth something.
In my experience, there have been, typically,
only two real determinants of the size of a company's top management team:
#1: The personality of the CEO. Some CEOs are by nature highly
inclusive - or they, frankly, enjoy an audience. There is nothing wrong with
this. They want everybody in the company who might be affected in the slightest
to be part of the team, whether to get their buy-in, applaud and salutate or
just receive orders. That's the way it was with the Internet company. Other CEOs
are much more private, spending much of the "noodling time" with two or three
other key people whose opinions they value. That's the way it was with the
former CEO of the health care company. He would go for long walks in a nearby
park with he chief legal counsel, who served as general advisor. If the roses
had ears, they would have heard the biggest decisions about the company being
made during these long walks in the California sun.
#2: The size of
the conference room. No, I am not kidding. I have seen this make an enormous
difference in the size of the top management team. If the CEO is an inclusive or
expansive type (see #1), then the only limit on who's invited is the fire
marshal's seating capacity limit.
Of course, I'm exaggerating a little
here about the conference room. But I must say, that whenever I've been working
with an expansive or inclusive CEO almost invariably every seat was filled, and
extra chairs brought in!
Then, too neither of these two factors - the
CEO personality or the size of the conference room have any material bearing on
how large the top management team should be. That should depend entirely on the
nature of the business and where it's going. But it doesn't. I've rarely seen
that criterion - "what does this business need?" - applied to the crucial
question of who the top management team really is.
By now you've
probably guessed the answer to Question One: Which company had the larger top
management team? The answer is that the two team sizes were almost identical -
even though one company had 2,000 times the revenue of the other, operated in 50
times the number of locations and was a public company! It's as if the size of
the company and the complexity of the business weren't related to the top
management team size at all!
It wasn't that the large health company's
CEO was a recluse. I was never in a meeting in which all the needed people
weren't present (and a few whose presence was perhaps at least distracting). It
was that this CEO had learned to pare the top management team down to a size
- Ideas can be communicated effectively. This means time for repetition,
saying things in other ways and getting feedback to make sure the communication
has been received, processed and incorporated into the receiver's mental
gymnasium. You just can't do that with a cast of thousands.
- Responsibility can be localized. This means that the CEO and COO don't have
to search the company's employee list to find who was responsible for the
important contract bid that was left on the back seat of the Silver City cab
last Thursday or why production in the main factory is 12% under target. He or
she can make the call to one of seven or 10 phone numbers.
- Consensus can be gained (when it's warranted). This means that where there
are few enough voices that the ones that are there can actually be heard! One of
the problems with large teams is that perversely, people have less say than when
teams are small. It's often better if the top management team is small but that
each top management team members own subordinate team has great access to the
team leader in particular and the other team members in general.
- For a 5-member team, there are 10 possible one-on-one relationships that can
be formed and have to be managed.
- For 7-member team, there are 21 relationships.
- For a 10-member team, there are 45 relationships
- For a 17-member team, there are 136 relationships.
doesn't even include the relationships among the various sub-groups in the team
that inevitable form.
Some will say that American firms have learned
from Japanese companies the importance of inclusion and consensus. I totally
agree. But having worked with Japanese firms, I can tell you that many times
that the consensus is built up in layer after layer of groups of people. It also
takes an extraordinary amount of time to ensure that all voices are heard that
communication is understood and that meanings are unambiguous. And I can tell
you that often the decisions are not really the result of broad consensus at
all. Often they're the work of a tiny "in crowd." What looks like the work of
broad consensus generation and large teamwork is really a process of selling and
So it is now also pretty obvious what the answer to
Question Number Two is: The huge health care company had the more effective
management team. Internet, dot-com aggressiveness to the contrary not
withstanding, the very cumbersomeness of the Internet company's top management
team got in the way of the job that had to be done.
What should the
dot-com CEO have done? Pared down that top management team - all those vice
presidents - ruthlessly. You don't need to fire them; you need to give them
someone to report to who will listen to them and get the most out of them. Seven
to ten is a good number of top management team members. For thousands of years,
history has shown that beyond about 12 to 15 people, teams - no matter how
talented - are too unwieldy, to indecisive to be effective.
If you can't
do that - get a smaller conference room.