Excess Management Is Costing the U.S. $3 Trillion Per Year

https://hbr.org/2016/09/excess-management-is-costing-the-us-3-trillion-per-year

Background Data

• There were 23.8 million managers, first-line supervisors, and administrators in the American workforce in 2014.
• Managers/administrators made up 17.6% of the U.S. workforce and received nearly 30% of total compensation.
• This comes out to 1 manager/administrator for every 4.7 employees

Key Findings

• An analysis of well-run companies shows that it should easily be possible to double the manager/emplooyee ratio to 10:1 (freeing up 12.5 million workers to do something more productive)
• As much as 50% of all internal compliance activity is of questionable value. (eg. budgeting, performance review)
• Non-managerial workers spend 16% of their time on internal compliance. This translates to an annual waste of 8.9 million worker years, or 8.9 million workers.

In total then, there are 21.4 million workers (12.5m + 8.9m) creating little to no economic value in the U.S. In other words, current economic output could be maintained with 15% fewer people in the labor force.

Some interesting case studies:

• Svenska Handelsbanken

  • Its return on equity has surpassed that of its European peers every year since 1971.
  • Consistently posted industry-beating cost-to-income and loan-loss ratios.
  • In the organization of 12,000 associates, there are only three levels.
  • Operating decisions are almost entirely decentralized (counter to conventional banking wisdom).
  • Each branch makes its own loan decisions, sets its own pricing on loans and deposits, controls its own marketing budget, runs its own website (on a shared platform), and serves all customer segments — from individuals to multinationals — within its catchment area.

• GE’s Durham plant

  • more than 300 technicians and a single supervisor: the plant manager.
  • more than twice as productive as its sister plants in GE Aviation.

The manager/employee ratio in these and other vanguard organizations is more than double the U.S. average.