Small business owners might be surprised to know that a small business requires different levels. Layers aren’t just for large corporations. While a flat organization can reduce costs associated with excess layers and foster coordination between you and employees, the benefits of having people assigned to different levels outweigh the benefits of a flat structure.
Small businesses require different levels due to the varying complexity of each task in the company and the time horizon associated with each task. The question is not whether small business requires different levels but how many job levels does it require?
Work complexity and task time horizon dictate the need for levels
Intriguing work by Elliott Jaques showed that for a business to be successful, it must have people assigned to and working at every complexity level. He showed that in any business, all work can be categorized according to complexity, which he defined as 1) the number of variables, 2) the number of unanticipated difficulties and 3) the time horizon required for the work.
We developed a chart of Task Complexity Levels to show exactly how to assign levels in your small business.
While Jaques’ model divided the large corporation into 7 levels, our model for small business suggests 5 or fewer depending on your company’s size and type of work.
The higher the level, the more strategic and complex the work is and the further into the future the focus of the work is. The lower the level, the fewer unpredictable, abstract variables in the work and the closer in time is the focus.
The owner’s focus, then, is on Level 5, the 5-10 year timeframe, working on strategic areas like the competitive environment and expansion (which the Single Sheet Business Plan is designed to enable you do). Once you’ve moved your focus into the 5-10 year time frame, your senior leader team can work in the 1-2 and 3-5 year time frames. These are your General Manager or Operations Manager and your business unit leaders who may be managing product lines or service, installation, and sales. Level 4 work involves managing a number of interactive initiatives. Level 3 work involves balancing the demands of today with future requirements. These managers are making daily trade-offs to keep the business on track to accomplish its shorter-term goals while servicing customers and dealing with people and process issues. Level 2 are your supervisors overseeing the daily work of a single function and Level 1 are your frontline employees.
You’re simply trying to break down the work of the organization by complexity and time period. But what we frequently see is owners who are working, or trying to work, at every level. Carol, owner of a metal fabrication and CNC plant, was a good example.
Carol said she was overwhelmed. She spent her days running around checking on people to see if they’d gotten tasks done, reminding them of their commitments, and generally poking at people as she buzzed through the plant. Carol was working at Level 1, interacting directly with frontline employees. She was also working at Level 2 with supervisors. Instead of trusting her business unit managers to manage operations she was working at Level 3 too! Her mind was exploding with short-term, daily issues while trying to hold on to the unanticipated variables having to do with the competition and strategic ideas she had for the future. With her mind held fast in the here-and-now, she couldn’t keep track of, let alone pursue, the ideas for the future. For Carol to start operating “in her lane,” she needed to trust supervisors and managers to operate in their lanes.
Your small business requires different levels because, if you’re not looking at your business in the next year, or the next 5 to 10 years, you can be sure no one else is!
Think the farmer who’s preparing the soil so that it’s optimized for the planting that’s to come. If you’re not “preparing the soil” in your business, you’ll find that whatever is being planted now may work against the future success and growth of your business. And in the same way, each complexity level in your company deserves a person, or people, assigned to focus on it.
Whether you have 2 levels, or 3, 4, or 5, when all of your employees are working at their designated complexity level in their designated time frame, the business moves forward on multiple fronts. Talk about your well-oiled machine!
Affording the “high salaries” of leaders
Let’s address a common and legitimate objection to hiring leaders which is that you can’t afford the higher salaries of leaders. Instead of, overnight, shelling out the big bucks to hire someone into a leadership position, ease into it.
When you appoint someone into a leadership role, nothing needs to change in terms of compensation. Initially all you’re doing is calling the person out to be a leader. These can be people at their current salaries who’ve demonstrated a knack for, and an interest in, leading and who are willing to give it a try. In fact, you wouldn’t want someone in a leadership role who only took the role to get a raise. After a period of three to six months, if the new leader has been successful, you can create a bonus program based on gross profit or net income; then you’re paying them more as the business earns more. Later you can adjust salaries when the company is producing enough profit to increase their salary.
The end result is that the most highly compensated people on your team are producing the greatest value, giving you an excellent ROI on their compensation and benefits investment. They’ll also enjoy the work, feel good about the value they’re creating and will stay with you far longer than others who are operating well below their full capabilities.
Knowing that your small business requires different levels is half the battle. The other half is putting a plan in place to identify and staff the levels. If you’d like guidance, we’d love to talk to you. Email us for a free consult.
Another way to get started is to attend Inspire Results’ quarterly Growth Plan Workshop where you can put together a plan to implement levels and meet your 2024 goals.