When Should Managers Delegate?

The Lego Group is one of many companies that are both reducing their number of management layers while expanding their layer of top management. The trend allows that organizational culture can emerge and percolate within a deliberately managed structure and design.

Do businesses run better with an egalitarian organization or with top-down management?

Many companies are tilting away from authoritative structures and embracing “managing without managers.” These companies maintain that well-designed incentives can help motivate employees to take the initiative and essentially manage themselves.

“Modern organizations such as online retailer Zappos have come to favor flat hierarchies with widely distributed authority,” write Nicolai J. Foss and Peter G. Klein in “Why Managers Still Matter,” from the Fall 2014 issue of MIT Sloan Management Review.

Foss and Klein call these businesses “wikified companies” — organizations built and managed around loose, bottom-up structures such as Wikipedia.

“‘Wikifying’ the modern business has become a call to arms for some management scholars and pundits,” they note. “As Tim Kastelle, a leading scholar on innovation management at the University of Queensland Business School in Australia, wrote: ‘It’s time to start reimagining management. Making everyone a chief is a good place to start.’”

Not so fast, Foss and Klein say.

“From our perspective, the view that executive authority is increasingly passé is wrong,” they write. “Indeed, we have found that it is essential in situations where (1) decisions are time-sensitive; (2) key knowledge is concentrated within the management team; and (3) there is need for internal coordination. Such conditions are hallmarks of our networked, knowledge-intensive and hypercompetitive economy.”

In many companies, managers are focused on figuring out what the best mix is. That is, what is the right level of empowerment, and how do the different elements of organizational design work together? The Lego Group, for instance, is part of this trend, say the authors. “Lego is developing a new model: becoming both more wikified and more management-driven.”

To determine the best mix of how and when to use authority, Foss and Klein suggest that companies consider six questions:

1. Do you have a need for speed? “If time is of the essence — if there is a high degree of decision-making urgency — then allowing senior managers to make the decisions without relying on dialogue and consensus may be better for the organization.”

2. What do employees know, and when do they know it? “Employees closer to the action often have better knowledge about local conditions. But senior managers may have more information about corporate strategy, overall market conditions, legal or regulatory issues, and other things that are just as important.”

3. What knowledge really matters? “What does each decision maker need to know to make the right decision? Is gaining additional information worth more than it costs? Is decisive knowledge sufficiently represented at the top management level?”

4. Have employee rights and responsibilities become entitlements? “People tend to value things they had and lost more highly than things they have never had. The gains from centralization must be strong to overcome these costs.”

5. Does the company have a well-functioning procedural justice system? “Do employees feel that their concerns about autonomy and responsibility are heard and taken seriously?”

6. Does your company’s planning include changes in company structure? “Company structure and overall strategy need to be aligned. Company structure is very much about who holds decision-making authority over company assets.”

“In today’s world, managerial authority needs to be exercised smartly,” the authors conclude. “Talking about an ethos of participation but acting in ways that are in direct contradiction is a recipe for disaster. Managerial authority still works — but it needs to be accompanied by strong, credible communication and a commitment to fair procedure.”

For more on how to finesse and consider management options, including examples from the Lego Group and from Apple, see the full article.

When Should Managers Delegate?