The Overmanaged Organization - Booz Allen Hamilton

The Overmanaged Organization
We’re from Corporate and We’re Here to Help
Burdened with multiple layers of management,
these organizations tend to suffer from “analysis
paralysis.” When they do move, they move slowly
and reactively, often pursuing opportunities
later or less vigorously than their competitors.
More consumed with the trees than the forest,
managers spend their time checking one another’s
work, rather than scanning the horizon for
opportunities or threats. These organizations are
frequently bureaucratic and political in nature and
tend to frustrate self-starters and results-oriented
individuals.
Does your company fit this description If so, you are
not alone. Through our client work and extensive
research, we’ve found that Overmanaged is the
second most common of all organizational types (see
inset box this page). Given fierce competition, not to
mention pressure from the Board of Directors and
other shareholders, curing the ills of the overmanaged
organization should be a leadership imperative.
Fortunately, there is hope for the overmanaged patient.
With proper treatment, we have seen these companies
rapidly transformed into healthy, profitable, highperformers.
The cure is a two-step process—identifying
the symptoms and their root causes and then applying
proven remedies.
Identifying the Symptoms and Root Causes
The journey to organizational health begins with
understanding the problem. Booz Allen’s Org DNA
Profiler SM assessment tool can help you pinpoint
what is holding back organizational performance.
Naturally, symptoms vary across companies, and it is
unlikely any single company will demonstrate every
characteristic of the classic Overmanaged profile.
Exhibit 1, page 2, illustrates many of the overmanaged
organization’s potential ailments. Of these, three
root causes—over-involvement of Corporate, the lack
of good information in decisionmakers’ hands, and
bloated middle management layers—distinguish the
Overmanaged profile (See Exhibit 2, page 3).
“We’re from Corporate and We’re Here to Help”
Overmanaged organizations are highly centralized.
While centralization serves many companies well, in
the overmanaged organization, centralization has run
amok. Corporate spends too much time peering over
the business units’ shoulders, second-guessing their
actions, and making key decisions without
understanding the impact on the field. Decisionmaking
responsibilities are poorly defined, fingerpointing is
rampant, and execution
is slow and halfhearted
if it occurs at
all. Finally, the worst
of corporate politics
hampers overmanaged
organizations—
no one accepts ownership
and responsibility
because no one
sees any benefit in
doing so.
Overmanaged is one of seven
types of organizational DNA
profiles developed and tested
by Booz Allen Hamilton. Of the
seven types, three are healthy
(Resilient, Just-in-Time, Military)
while four (Passive Aggressive,
Outgrown, Overmanaged, Fitsand-Starts)
are unhealthy and
cannot effectively execute
their strategies. For more
information on Org DNA, or to
test your own organization’s
profile, visit the Org DNA
Profiler SM at www.orgdna.com

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Exhibit 1
Diagnosing the Overmanaged Organization
Source: Booz Allen Hamilton
Decisionmaking in the Dark
In an overmanaged organization, decisionmaking rights
reside at the top, but poor information flow means
that Corporate leaders often make decisions in the
dark. Under these conditions, those decisions tend to
be reactive rather than proactive, with limited positive
impact.
Structural Woes
Structural problems with far-reaching consequences
plague the overmanaged organization. As cogs in
rapid promotion cycles and believing that only vertical
moves are true promotions, talented managers often
vacate their positions before they have mastered them,
missing the opportunity to understand those areas
of the firm well. The resulting excessive management
layers create a wide separation between top and
bottom, impeding communication in both directions.
In addition, micromanagement hinders timely
decisionmaking.
Curing the Overmanaged Patient
We have found that treating these symptoms can transform
overmanaged organizations into highly responsive
players. However, just as different companies manifest
different symptoms, different approaches to curing the
overmanaged patient can be effective. The key lies in
identifying and prioritizing the areas to address.
First, develop a plan for the desired end state.
Begin by assessing the company’s current state: its
challenges, hypotheses about their causes, and a
preliminary forecast
of the solutions.
Use benchmarking
tools to validate
the preliminary
conclusions and to
help guide a highlevel
vision for the
new operating model.
Detailed design of the
new organizational
configuration follows.
Finally, implementation
of the carefully crafted
solutions requires
integrated change and
program management,
Our Data on the
Overmanaged Organization
Of 25,000 responses to Booz
Allen’s Organizational DNA
Profiler SM assessment tool, 16
percent described Overmanaged
profiles. This diagnosis is most
likely to be recognized by line
managers—who suffer most
acutely the “churn and burn” of
the overmanaged organization.
Although this profile is usually
seen in companies with revenues
ranging from $500 million
to $1 billion, it nevertheless
applies to firms of all sizes.
The consequences of this ailment
Overmanaged companies
are most likely to be reported
as “less profitable” than their
rivals.

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Exhibit 2
Profiler Analysis of Overmanaged Root Causes
Source: Booz Allen Hamilton Org DNA Profiler SM . Total responses: 25,000
including working with staff to help them adjust to their
place in the new model and carefully timing the various
initiatives.
The second step varies, depending on the situation—
we have seen two options succeed. Option 1
attacks the structural problem first—excising middle
management layers and using this reorganization to
force changes in three other vital areas: information
flow, decision rights, and motivators. This option works
best when financial or shareholder pressure is strong,
organizational impetus toward change is weak, or
leadership already knows where excess staff capacity
exists.
Option 2 takes the opposite approach—focusing first
on non-structural issues like information flows, decision
rights, and incentive structures to reveal redundancies
in the middle layers, allowing the subsequent
restructuring to develop naturally. This option is most
appropriate when the three driving conditions described
in Option 1 are not in play. Another factor arguing for
use of Option 2 is the existence of a robust way to
monitor staff capacity utilization.
With both options, the following three fundamental
remedies will help put the overmanaged company on
the road to organizational health.
Reduce Layers and Increase Spans of Control
Whether it is the first step of reorganization or the
last, cutting layers and increasing spans of control are
crucial to streamlining performance (see Exhibit 3).
These actions force clear definition of all organizational
roles and decisionmaking authority, eliminate
micromanagement, minimize bureaucracy, and reduce
Exhibit 3
Excessive Layers: Outlaw the Infamous “I”-Formation
Source: Booz Allen Hamilton

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redundancies. One note of caution—such restructuring
produces a profoundly different way of operating—
managers should be well prepared and appropriately
compensated for their new responsibilities.
Classic Example: GE Medical 1
GE Medical Systems in Milwaukee cut its order-toremittance
time by 40 percent in 3 years by de-layering
multiple times in the early 1990s. Serge Huot, VP of
global sourcing in 1995, argued: “In a big organization
each layer slows down the process. By de-layering, you
are giving people the power to change.” For example,
as a result of the de-layering in the X-Ray facility, only
a production manager remained between the plant
manager and 170 factory workers.
Reconfirm or Reallocate Decision Rights
Healing the overmanaged organization also requires a
new approach to decisionmaking. Leaders must consider
each decisionmaking situation separately, choosing
between two approaches: reconfirming a fundamentally
centralized decisionmaking process or reallocating
decision rights more broadly throughout the company.
In general, centralized decisionmaking is most appropriate
for decisions involving strategic, financial, or customer
risk. However, decisions that have primarily local
impact on individual business units are candidates for
re-allocation.
Reconfirming centralized decision rights means reforming
the organization so that both decisions and information
align with the core of the organization, creating
a strong, informed central leadership that employees
can follow. Effective centralized decisionmaking
depends on routing information consistently to decisionmakers
at the Corporate level so they can make
decisions that stick. Success results only if Corporate
sets up motivational structures and policies to ensure
buy-in from the field—line managers must have a
reason to provide regular and reliable information to
Corporate, and to execute Corporate’s decisions, not
second-guess them. Once the model is up and running,
Corporate must invest in succession planning and in
grooming future decisionmakers.
Another option is to decentralize decisionmaking by reassigning
some decision rights lower in the hierarchy
and defining new roles with clear accountability and
ownership. Explicitly defining new roles will stamp
out the second-guessing and frequent handoffs
of responsibility that plague the overmanaged
organization. Appointing process owners charged with
cooperating horizontally across the organization will
break down silos. However, new roles must be assigned
thoughtfully, granting decision rights to the individuals
with best access to all of the most relevant information.
Whether reconfirming or reallocating decision rights,
clearly defining the linkage between decisionmaking
and business performance ensures employees know
why they are doing what they are doing. Clear policies
and guidelines, along with a performance assessment
mechanism supported by metrics that clearly reflect
the impact of decisions, show staff how their decisions
matter. Tying the results of decisions to promotions
and compensation provides further incentives. Finally,
investing now in a leadership development program
prepares employees to assume future decisionmaking
roles.
Classic Example: Taco Bell 2
In an attempt to make his firm more customer
focused, John Martin, CEO of Taco Bell, reengineered
the organization, eliminating management layers
and redefining the remaining jobs. For example, the
district manager “supervisory” layer that used to oversee
the management of 5-6 restaurants was cut, giving
the restaurant managers autonomy to manage their
$1-2 million businesses. The reengineering helped Taco
Bell witness unprecedented sales & earnings growth.
One of the key steps in helping the overmanaged
patient recuperate is improving the flow of information
within the organization. Here, it is important to
distinguish between “data” and “information”—many
overmanaged organizations are loaded with data
but lack the high-quality information needed to
drive effective decisionmaking. In fact, the impulse
to overmanage often springs from insufficient or
inaccurate information in the hands of decisionmakers,
1
Rahul Jacob, “The Struggle to Create an Organization for the 21st Century,” Fortune, April 3, 1995.
2
Michael Hammer & James Champy, Reengineering the Corporation, 1994.

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driving managers to double-check, second-guess, and
reverse decisions. The result is the kind of “churn and
burn” analysis paralysis, practiced mainly by middle
management, that gets the organization nowhere fast.
A variety of remedies can provide the overmanaged
organization with the information it so vitally needs.
Bridging communication gaps both vertically and horizontally
represents a good start. Setting up reliable
conduits of information between top and bottom is an
essential part of the cure. In addition, communication
horizontally across units can eliminate the silo effect
that keeps so many employees uninformed. Experience
shows that rewarding information and idea exchange
motivates employees to find new ways to share
throughout the company, across different divisions and
functions.
To facilitate good decisionmaking, it’s crucial that all
key inputs reach decisionmakers on time and in a useful
format—providing a 200-page report to a manager
with a tight decision deadline doesn’t meet anyone’s
needs. Easy information access—sometimes through
an on-demand system—can ensure that all employees
can get the information they need, when they need it.
Finally, to foster employee ownership, tell everyone
about the impact of their actions on the company’s
bottom line—doing so can spur creativity and action,
and exponentially raise the chances of success of any
reform campaign.
Classic Example: The New York Times 3
When the HR organization of The New York Times
realized that it needed an effective way to improve
information sharing, it launched a weekly online
newsletter that focused on HR “trends and internal
business updates“ along with an interactive message
board. In a feedback survey, 85 percent of employees
said that the e-newsletter helped them “better
understand the HR philosophy and the company’s
strategic direction and to be more productive.” The
survey also found that “initiatives were implemented
with increased speed as the new communications
channels helped HR staff exchange information and
collaborate quickly.”
Next Steps
Booz Allen’s extensive client experience suggests that
systematic application of these and other remedies can
cure the overmanaged organization, producing a new
kind of company with more efficient information flows to
drive decisionmaking and a more aligned organizational
structure with fewer layers and clearer accountability.
With the right treatment, overmanaged organizations
can be transformed from slow-moving behemoths into
lean, fast-moving competitors.
3
“Strategies for Making Manager-to-Employee Communication Count,” Managing Customer Service, July 1, 2004.

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