The Magic Number of Direct Reports

blog Dec 14, 2022

There’s a fine balance between the number of people that report into any one position and how effectively a business or organisation continues to run. It’s quite often an aspect of organisational structure that is overlooked, neglected, or spirals quickly out of control as businesses scale and grow without a clearly identified structure or resourcing plan for growth.

But there is a magic number of direct reports that hits the sweet spot, ensuring that you have just the right number of staff reporting into a single position while still ensuring that position itself is effective depending on the nature of the role.

Structure is one of the fundamental aspects of ensuring that you don’t overwhelm, or even underwhelm, your management team and help set them, and their teams, up for success – in the long run, this feeds into your business success and is well worth investing in.

There are actually five key factors or variables that impact the success of direct report structures and we’ll dive into that but first, we’re going to take a look at why structure matters, and what kind of structure might work for your business.

What kind of structure do I need?

Structure matters, and when it’s messy it’s hard

Structure matters and when a business structure is messy, the workflows will often become challenging, unproductive and, ultimately, unprofitable.

Getting your structure right is just the same as getting the foundations of your new house build right – if the foundation of your house is wobbly, the house you build on it is going to be affected. In the same way, an unstable structure will give you an unstable team – no matter how high functioning the individuals on your team may be.

As is the nature of running a small to medium sized business, our structure often looks like Frankenstein’s monster with bits added on crudely out of necessity, rather than a thoughtfully created and curated structure in the best interests of your business now and during periods of growth. This approach of reacting works for a short while, but the longer a business grows without clearly defined structure, or the quicker it grows without this structure in place, the more unstable the house becomes as it leans on an equally unstable foundation.

How do I create the right structure?

A great place to start, no matter where your business is at is with the Clean Slate Exercise. In fact, it’s a great exercise to do annually to take stock and futureproof the structure of your business.

This will help you understand what roles your business actually needs, the critical skills gap that pose a risk to your business growth and longevity, and identify any structural issues that are adversely impacting your business.

How many direct reports should I have?

One of the key structural issues we see adversely impacting small to medium business is around structure of the team, specifically the line of reporting.

Managers these days are often not only charged with managing a team but also a host of other responsibilities that will often compete for their attention.

Typically, for a smooth operation, managers should have fewer than 8 reports only if they have no other responsibilities which is a rare circumstance, particularly in smaller businesses.

The magic number for managers whose sole role is to manage a team is 7 plus or minus 2 depending on a range of variable factors.

The reporting line will often also be impacted by the hierarchy of the organisation with flatter structures seeing more direct reports than more structured, hierarchical ones. Small business owners in particularly often don’t see the need to introduce a hierarchy thinking this kind of structure is only for larger businesses – but this couldn’t be further from the truth.

If you’re hitting a situation where you have managers managing anywhere between five and seven people, it’s time to start looking at hierarchies and layers – essentially, a different structure or evolving your existing structure to ensure your business is sustainable and profitable.

What variables affect a manager’s capacity for direct reports?

There are so many variables that will affect the number of direct reports a manager or supervisor in a small business should have.

The top five variables that impact reporting structures are:

1. Complex Work
With complex work comes a reduced span of control which means that managers with these types of workloads should have fewer direct reports. For example, a call center or production line can have more direct reports into a single position where a consulting or allied health roles involve more complexity and therefore less direct reports will make management more effective.

2. Experience Levels
The dream would be to have a team with significant experience, autonomy and self-direction which is rarely the case. With lower experience levels also come a reduced span of control which should mean lower numbers of direct reports. For example, generally junior staff and trainees will need more guidance, supervision and support than more experienced staff requiring more of your manager’s attention.

3. Acceptable Error Rates
The acceptable error rate is all about the precision of the work of your business. If you have safe margins of error, higher numbers of direct reports might be feasible, but if your margins of error are next to none, then implementing a structure that facilitates fewer direct reports to each management or supervisory role is recommended.

4. Leadership Skills
This is an easily overlooked variable as often managers can be promoted to positions of leadership without the skills a leader needs. Ensuring that your staff you supervise, manage and lead teams have the necessary skill to do so, increases the span of control. Things like professional development, regularly training days and getting feedback from your team can help you ensure your leadership team is adequately skilled.

5. Environmental stability
No matter how great your team is, environmental stability, or rather, how dynamic your environment is will also play a role in the success of your business structure and impact the number of effective direct reports into your management positions. The more dynamic a workplace, the more reduced the span of control and being conservative with your team numbers will often be to your advantage.

If you’re in any doubt as to the structure of your team, finding that your current structures aren’t as effective or are just on the verge of growth and looking for the right type of structure to create – get in touch with our team.

An invitation to join a thriving business community