As companies grow, one of the most important decisions they will make is determining the appropriate size of their leadership team. The leadership team needs to be big enough to bring a diversity of perspectives and skills, but small enough to allow for efficient decision-making and effective communication.
A scale-up I’m working with has recently undergone an organisational restructure. There were multiple reasons for this change, but one of the main pain points driving the change was that the CEO simply had too many direct reports. With increasing pressures on his time dealing with regulatory challenges, mergers and acquisitions, he simply could not give his 10+ direct reports the time they needed to progress decisions quickly enough. The leadership team overall needed fewer members, with more decision making authority, to effectively perform their duties as a leadership function and execute on strategic plans and priorities.
So what size is the right size?
A study by Bain & Company found where there are seven people in a decision making group, personal and performance is highest. After seven people, each extra member reduces decision effectiveness by 10 percent.
Bob Sutton recently cited the late Harvard Researcher J.Richard Hackman that “four to six members is the best team size for most tasks, that no work team should have more than 10 members, and that performance problems and interpersonal friction increases exponentially as team size increases”.
In the early days of Amazon, Jeff Bezos instilled the “two pizza rule”, where every internal team should be small enough that it can be fed with two pizzas. While this simple concept hasn’t been applied as a rule of law – it does seem to be true for the team at the top with only six executive officers at the helm of the multi-billion dollar company. That’s enough for at least two large slices per person!
How about another kind of leadership team – Company Boards. The AICD cite that board size has received attention in the US governance literature because of its correlation between large board sizes (15 to 20 members) and poor performance of the company. “The larger the board, the greater potential for creating factions, as well as risking disharmony and difficulty in effective decision making”.
The AICD avoid prescriptions for board size, but rather provide ‘rules of thumb’ according to company and industry type. For example, they recommend board sizes of 8-12 for large ASX listed companies; 6 to 8 for medium ASX listed companies; 4 to 6 for small ASX listed companies; and 1 to 4 for proprietary companies.
YPO (Young Presidents Organisation) and EO (Entrepreneurs Organisation) offer another example of a leadership group – a Forum. Forums do not exist for decision-making, but rather for learning. Forums are composed of 8-10 non-competitive CEOs and / or Founders who meet regularly with the purpose of learning and idea exchange. As a Certified Forum Facilitator (CFF) for YPO – I’ve worked with dozens of forum groups, who’s members often state their ideal size is eight. Six members don’t provide enough diversity of ideas and experiences; while 10+ make it difficult for all members to form cohesive bonds and contribute meaningfully within their allocated meeting time.
A factor to consider when deciding on the size of your leadership team is the stage of the company’s growth. In the start-up phase, a smaller team may be more appropriate. Smaller teams tend to be more agile and, with fewer people involved, able to make decisions more quickly. In smaller teams, each person is more likely to have a deep understanding of the company’s goals and strategy. They are also more likely to have a stronger sense of camaraderie and shared purpose, which can lead to better collaboration.
As the company grows, more functions need to be added and leadership teams often grow in size. Larger leadership teams can benefit from a more diverse range of skills and perspectives. A larger team may be better equipped to handle complex challenges and be more effective at managing a larger number of employees. However, the research demonstrates that bigger is not necessarily better. There is a tipping point around the number eight, where the group size can start to become dysfunctional to the overall performance of the group.
Where leadership teams start to exceed 8 members, it might be wise to instill leadership layers – an extended leadership team reporting to the executive leadership team – who are empowered to parcel out the programs of work and compartmentalise projects into tangible actions within sub-groups and individuals.
The decision about the best size for the leadership team depends on the needs of the company, the stage of its growth, and the skills of the people involved. Ultimately, the focus should always be on selecting the right people with the right skills and experience, regardless of team size.
AICD (Australian Institute of Company Directors) Company Directors Course materials: Governance and the Practice of Leadership, pp42 of 249.