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Leadership calendar    Apr 04, 2024

Finding the Sweet Spot: Span of Control in Growth-Stage Companies

We recently released the 2024 Growth Index — a compilation of benchmark data and best practices associated with growth-stage companies. This year’s Growth Index focuses on metrics that matter for companies to tell their current and future stories. In this blog, Operating Partner Steve Schloss dives further into span of control, one of ten metrics highlighted in the Index and a key consideration for growth-stage CEOs.

In a recent Business Insider post featuring his interview with Stanford’s Graduate School of Business, Jensen Huang, co-founder and CEO of Nvidia, was quoted as having over 50 direct reports. According to Huang, “those who report to the CEO (theoretically) require the least amount of oversight, so CEOs have more bandwidth than other managers.” He went on to say that “taking on more direct reports could even help CEOs level the organizational playing field... the more individuals with whom a CEO directly communicates, the less likely an employee’s stance at the company will be determined by their access (or lack of access) to critical information."

Running concurrently on LinkedIn, Bob Sutton, the well-known Stanford organizational psychologist, recently shared his countervailing thoughts around organizational hierarchy and control, and the healthy friction that hierarchy creates inside companies of varying sizes. Sutton posited that many individuals seek and crave a healthy system of organizational hierarchy,  a perspective which, in its essence, runs counter to those who endorse flat leadership structures as optimal.   

So… in the end… who’s right?  

For many CEOs with oversight of growth-stage companies, the dilemma of too much or too little hierarchy is a uniquely acute challenge. I regularly coach and advise growth-stage company CEOs of all sizes, and far smaller than Nvidia. Over the past two years, each of these CEOs has led their respective organization through strategic business and cultural shifts. These shifts have coincided with personal shifts – from start-up leadership tendencies to more established leadership approaches, including best practice approaches to forming their senior executive teams. Unwaveringly, each CEO learned – mostly through trial and error – the importance of leadership team role clarity and size, as well as the art and science of leadership span of control, as they worked to achieve sustained organizational growth.

Finding The Sweet Spot  

Growth-stage CEOs comprise and organize their leadership teams quite differently. Some prefer a streamlined design focused on bringing together a few key leaders and the commensurate expertise that matters most to meeting the needs of the current or next stage of growth (more in line with Sutton). Others opt for a flatter and larger team (8+) to help ensure two-way direct access to key players overseeing critical company functions (more akin to Huang).  

While there are numerous best practices for leadership team span of control in midsized companies, four to seven direct reports is generally considered optimal in the context of business model, strategy, and present operating conditions. Growth-stage CEOs referencing those benchmarks sometimes require a little bit of convincing to accept an alternative approach, coupled with a general willingness to bend or flex in their assumptions.  

Consider the latest  Edge Growth Index which surveyed a cross section of high-growth companies that represent wide range of size, complexity, industry, and leadership sophistication:   

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A key performance metric critical to determining executive leadership size and team span of control looks one level down. Regardless of the reporting company size, stage, and complexity, the average leadership team generally fell within the overall 4-7 team size metric, with an average span of control one level down at approximately 1:5 (i.e. +/- five people reporting into each single member of the executive team).  

These growth-stage company CEOs ultimately came to similar outcomes for a few important reasons: 

  • Notably, they face the dual challenge of operating lean to manage costs, while still needing to attract and retain key people, primarily in the high-impact areas of Go-to-Market, CX, and Product & Engineering. The need to operate efficiently also requires a focus on cross-functional operating effectiveness, while maximizing talent and capabilities.  
  • They also balance “deep and flat” by limiting senior leadership team size, and flattening one level below to promote direct access, connection, ownership and decision-making.  
  • They acknowledge that the type, design, and size of their leadership teams is critical in setting the right tone for organizational efficiency and performance. While 4-7 individuals might be optimal for the given growth stage, span of control needs to be dynamic, and must be grounded in the right team performance conditions, team member capabilities, and alignment and measurement systems. 

Making it Happen 

Large cap tech companies often have 10 or more CEO direct reports and wider spans of control to support their complex global markets and customers. Lower to mid-market growth company CEOs, however, should not necessarily see this as a best practice, but instead ask themselves several important span of control questions as they navigate their own stage-centric growth:  

  1. What is the real nature of the business? Does the complexity of products or services involve a more intricate business model requiring a narrower span of control to ensure close oversight, especially in areas where there is deep expertise or competitive advantage?
  2. How autonomous are the teams in the company? What is the best way to enable their innovation and creativity? (Empowering teams can often necessitate building a broader senior leadership team and a wider span of control.) 
  3. What is my CEO leadership style? If I lean toward a more hands-on approach, a smaller span of control might align more closely with my management philosophy. However, as the organization scales, and CEO time is allocated differently – to serve both internal and external interests – it’s critical to know when to let go.
  4. What happens as the company grows and the workforce must be scaled? While the organization might already operate in a distributed fashion, expanding geographically and globally is a direct determinant to leadership team size and span of control. Managing teams across different time zones and cultural contexts requires adjustments to ensure greater efficiency and effectiveness. 
  5. How well defined are the organization’s operating processes? Growth enhances the need for more intentional and streamlined processes to help support a wider span of control, and reduce the need for micromanagement, often a growth-stage CEO Achilles heel. 

Most importantly, growth-stage CEOs should approach the assessment and adjustment of senior leadership team size and span of control with an informed and holistic perspective. As part of this process, it is critical to amass and assimilate quantitative and qualitative data, a comprehensive understanding of the current state of leadership effectiveness, work design across the business, decision-making processes and bottlenecks, and the impact of both hybrid and remote distributed workplace models on the organization.  

In making it happen, here are a few additional areas worth considering: 

  • It may be of value to initiate a workforce planning exercise that assesses roles, skills, and outputs required to run the business. Generally, it is best to start at the top, and take an outside-in systems view of the resources required. 
  • It might also be worthwhile to assess the role of “manager” in the company. Often, an underserved capability is mid- and front-line managers. For example, are you creating supervisory or player-coach roles that suggest different skills and priorities needed to fulfill role objectives? If you are shooting for, or nearing, profitability AND growth, it is important to ensure you have employees who can operate both as supervisors and players and have processes that help maximize team performance. 
  • For those organizations with a hybrid or remote operating model, it can be invaluable to build a culture of continuous improvement and feedback to help ensure effective skills and capabilities are being utilized within and across teams to meet your forward objectives. Consider an organizational network analysis to help understand how and where work actually gets done, how communications occur, and how structure helps or hinders the overall process.    

Regardless of what approach a growth-stage CEO chooses, determining leadership team size and span of control will have a direct and defining impact on talent attraction and retention, cultural dynamics, and company operating performance.

Steve is an accomplished and mission-driven business leader, 2x former chief people officer, and trusted partner with the board, CEO, and executive team.  Known for his intentional, pragmatic, and values-driven leadership, Steve is a highly effective executive and team coach, advisor, and facilitator.