Thai Companies Suffer From too Many Chiefs and Internal Business Groups by Phairath Khampha 19 February 2003 Fewer command levels improve efficiency All too many Thai companies are excessively burdened with multiple command levels and internal groups or divisions that operate as semi-autonomous and semi-competing business units, hindering management flexibility in decision-making, decreasing the companies' efficiency and overburndening them with costs because of internal services duplication including management, according to a recent study by consultancy Watson Wyatt (Thailand). The study showed that companies with more than 1,000 employees had more than 10 official levels of command, compared to 5-7 levels deemed more appropriate for modern organisations. Companies with less than 200 employess do better with less than 2 or 3 business groups and perhaps only two vice presidents. "The organisations with fewer levels of command and less internal business groups will have more management flexibility in decision making than organisations with hierarchical levels of command," said Tayat Sriplung, Watson Wyatt managing director. "This means a leaner and meaner company that has lower overheads meaning markups are lower, making it more competitive." The survey showed that 65% of participants had from five to 10 senior managers reporting directly to the managing director, with 14% having 11-15 senior managers reporting directly to the top. The telecommunications industry led other sectors in the number of companies with senior managers reporting directly to the managing director. "It may be perceived as a particular skill of some managing directors who can manage such a wide span of control. However, in the executive level, having a span of control of more than 15 senior managers may have a negative impact since the quality of work may deteriorate," Mr Tayat said. "This was a concept that was fostered by business management advisors such as Aurther Andersen in the early 1990s," Mr Tayat said. "However, it quickly became clear that having internal semi-autonomy with business units competing against each other, as if it were, leads to management and operations inefficiencies because of less flexibility, managers' concerns with increasing their groups' revenue and duplication of many mundane services, which really ought to be centralised." Watson Wyatt surveyed a total of 124 leading Thai and multinational companies in December and January for the survey on organisational structures and human resources. Firms surveyed covered a range of industries: Financial services, engineering consulting, consumer products, health care, manufacturing and telecoms. The survey showed that the HR function at most Thai firms was a combination of administrative tasks and strategic planning, in contrast to more developed countries where administrative tasks are mostly outsourced. Watson Wyatt said that Thai firms were making moves to improve transparency, with 60% of firms surveyed reporting active internal audit units and 25% with an audit unit reporting directly to managing directors. Nine percent of firms surveyed had internal audit units report to audit committees, with 8% reporting to shareholders and the rest to other units. The majority of firms, 60% in the survey. applied "key performance indicators" to benchmark and evaluate management performance, led by the health-care and pharmaceutical industries at 83%. Only 45% of non-bank financial institutions utilised such indicators to measure management performance. The survey showed that many firms had cross-functional units to co-ordinate operations across their organisations and that 60% classified functions based on product lines or services. Half the firms surveyed had established a "think tank" to direct strategy, and 55% had a research and development unit. The survey indicated that the last two aspects were very important to a firm's future competitiveness. Conservative thinking and "not being able to see outside the box" were seen as the most destructive elements to a firm's future existence. Moving outside of a traditional approach and clients and sectors seemed to provide a firm the greater chance of long-term success, despite apparent up-front risks and costs. Some 75% of the firms surveyed had a ratio of employees per HR staff ranging from 10 to 100 employees.