Jeremy Abroad

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

November 11, 2016

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.


Jeremy Bernier

Written by Jeremy Bernier who left the NYC rat race to travel the world, work remotely, and find the meaning of life.