Too many cooks spoil the broth

IN business, a top-heavy organisational structure often refers to a situation where a company has too many managers.

This might mean too many presidents, vice-presidents and other mid-level managers between the most senior and the most junior worker. It also implies too many administrative support personnel, who do not necessarily have any command authority.

It is important to note that if one employee has to report to three managers, it will be counterproductive. If managers A, B and C need to have input over one employee, they only need to assign one manager (manager A) to deal with the employee.

And if manager B and C need any clarification, they will have to liase with manager A. Put simply, only one person should communicate with the employee.

Most often the bane of top-heavy companies is the difficulty of trying to overcome financial shortfalls since many of them have higher fixed (payroll, rent, etc) and variable costs (telecommunications, employee expenses, etc) than companies that are not top-heavy.

If a company has a significant allocation of its monthly budget on administrative costs, the risk of significant cashflow shortfalls is high. In most cases the company’s break-even point is often higher.

It is often said too many cooks spoil the broth, which is true. Top-heavy companies usually have too many cooks in the kitchen. A company that has more managers and executives than what it actually requires can easily fail as this has direct implications on the company’s finances.

Also, one thing that is oft overlooked is that in cases where there are too many executives, roles overlap and are duplicated.

This has the tendency to create unwanted, avoidable conflicts between staff and management, and between the managers themselves. But, most importantly, the ability of the company to grow is constrained as funds that are allocated to management salaries can ordinarily be invested into the business to generare more sales, reduce cost of sales, eliminate debts and distribute profits to owners.

It should also be considered that such a company setup naturally results in bureacratic inefficiencies.

Decisions could take twice or three times as long because a consensus could not be reached within a reasonable time frame.

Such decision-making processes are not conducive for the efficient operation of a business.

Opportunities to improve the business could be overlooked due to management/executives being distracted or due to lack of oversight of the entire business operation.

Staff morale may drop due to lack of transparency in management. By any means small business owners have to be aware of the activities of their staff and managers.

This oversight is paramount.

A clearly outlined organogram is the first step towards streamlining the duties of staff members.

In cases where there are managers who do not have employees directly reporting to them it might be prudent to review their positions.

In essence, small businesses cannot afford to have high overhead costs and shareholders have to try by all means to ensure that they have an efficient and useful management structure.

Operating a top-heavy company could mean failure is imminent.

Being proactive to reduce unnecessary administrative costs is crucial. Speak with an accounting professional (ideally your corporate tax accountant) to discuss cost allocations if you are not sure whether your business is top-heavy or not.

Our companies need to seriously look into this.

With the current economic challenges, it is time to trim down and increase productivity to ensure sustainability.

It is incumbent upon businesses to have very few executives. We might need to emphasise that too many cooks always spoil the broth. Consultants are always available to assist with restructuring exercises.

An organisation with a few executives is usually more productive and it is run more efficiently than those that are top-heavy.

Taurai Changwa is an articled accountant and ACCA finalist. He is managing director of SAFIC Consultancy. He writes in his personal capacity and can be contacted at [email protected], on Facebook page SAFIC Consultancy, and WhatsApp number 0772374784.