Citi’s recent announcement of a major restructuring, with the reduction of management layers from 13 to 8, has caught the attention of many. The magnitude of this change, especially in one of the world’s largest banks, is a testament to the power of streamlining organisations. But how can such a drastic transformation be successfully achieved?<\/b><\/p>\n<\/div><\/div><\/div><\/div><\/div> Citi’s recent announcement of a major restructuring, with the reduction of management layers from 13 to 8, has caught the attention of many. The magnitude of this change, especially in one of the world’s largest banks, is a testament to the power of streamlining organisations. But how can such a drastic transformation be successfully achieved? The answer lies in recognising that many of those additional layers were never really necessary in the first place. In fact, one could argue that for Citi even eight layers might be one layer too many.<\/b><\/span><\/p>\n At VALPEO, we advocate a distinctive approach to organisational design and development – one based on the concept of “levels of value creation\u201d \u2013 which allows us to appreciate Citi\u2019s restructuring not just as cost reduction exercise but one that is founded on seeking faster, agile and more sustainable value creation.<\/p>\n Our approach, based on decades of research and corporate practice, is simple: the higher an organisation’s purpose in terms of its impact on customers, industries, or society, the more levels of value creation it requires to manage its complexity effectively. However, even in the most complex global organisations, the magic number rarely exceeds seven. Most mid-cap companies, on the other hand, are optimally designed with only four or five levels of value creation.<\/p>\n There are only two cases that justify an extra organisational layer in addition to \u201cthe magic number\u201d of levels of value creation. Sometimes, organisations are in a situation that demands rapid turnaround. In these cases, having that an extra level of capacity for complexity at the top, whether you are a three, four, five or six-level organisation, can act as a rocket booster that propels the organisation to a stable orbit and then gets \u201cjettisoned\u201d. Interim executives often step into such roles, leveraging their capacity for handling complexity and change at an accelerated pace. At VALPEO we often support clients in finding these transformative interim executives.<\/p>\n In scenarios where there’s a high risk of attrition at the first-line manager level, organisations need an additional layer for added resilience. This may come at a significant economic cost, but it’s a strategic trade-off to ensure that essential managerial roles remain intact. Amazon, the e-commerce giant, serves as an excellent example of why an extra layer can be a useful addition when facing challenges related to workforce attrition at the first-line manager level. In Amazon’s vast and rapidly evolving logistics operations, the first-line managers, responsible for overseeing warehouses and distribution centres, fulfil a critical, demanding and intense role. To maintain resilience and steady operations,<\/p>\n Amazon has introduced an additional management layer known as Area Managers to oversee a cluster of warehouses and act as a buffer layer between the first-line managers and higher-level middle managers. This additional layer serves a crucial purpose. It helps distribute the workload, provides support and training to first-line managers, and ensures operational consistency, even when individual first-line managers may change due to attrition.<\/p>\n There are also two cases where the actual \u201cmagic number\u201d of levels of value creation increases beyond the obvious, creating the need for an additional (but not extraneous) organisational layer.<\/span><\/p>\n Sometimes companies need to add a layer given the evolution toward creating new levels of value. For example, organisations focused on operational excellence often realise that they need an innovation layer to add capability in the organisation to remain relevant and value creating. Most common triggers for this upshift include:<\/p>\n a) Upshift in stakeholder expectations.<\/b><\/p>\n For example, a private equity firm buying a level-four mid-cap company with a view of transforming it into a level-five industry disruptor. That requires a new CEO with capacity for complexity at level five, and a senior leadership team at level four. This senior leadership team will almost always need to be recruited from the outside, as it will no<\/span><\/span>rmally take years, and in some cases many years, for the existing management team operating at level thee to evolve to level four.<\/span><\/p>\n b) The founder\u2019s individual growth trajectory.<\/b><\/p>\n A small number of founders are on a particularly steep trajectory: their capacity for complexity grows at an exceptionally fast rate. As the founder progresses to the next level of capacity for complexity, he \u201cpulls\u201d the entire organisation up a level of value creation. Richard Branson\u2019s personal journey as the driver of Virgin Group is a case in point It is, however, rarely the case that the entire leadership team is on the same trajectory as the founder and is therefore ready to step up to a new level of value creation at the same time. That\u2019s why such founders have to go through more than one \u201cgeneration\u201d of executive teams, each time at a higher level of capacity for complexity.<\/p>\n Some organisations have ambitions that extend far beyond financial gains. They aim to drive multi-decade or even multi-generation societal transformations, such as the transition towards a circular economy, creating Net Zero industries, or spearheading breakthrough developments in global energy and water supply. These initiatives require an added eighth level of value creation for CEO role to navigate the complexities of long-term, visionary goals. It’s akin to funding programs that aim to take humanity beyond earthly limits, using companies like SpaceX as vehicles for expansion and transformation.<\/span><\/p>\n In summary, Citi’s move to reduce layers is a testament to their understanding of the need for a leaner and more agile structure. But it’s not about arbitrary numbers; it’s about aligning the organisational design with the natural levels of value creation. By doing so, Citi is likely to witness enhanced speed to market, improved productivity, higher customer satisfaction, and ultimately, better financial performance.<\/p>\n The transformation at Citi serves as a compelling case study for organisations of ALL sizes and industries. Don\u2019t sit back and think this only applies to Citi because of its scale. The same issues and challenges exist in most organisations that have more than 300 employees. It illustrates the importance of recognizing the inherent levels of value creation within your organisation and aligning your structure accordingly. It’s a journey towards efficiency, agility, and ultimately, better results for clients, shareholders, and society as a whole.<\/p>\n The success of any organisational transformation hinges not only on the structural changes but also on having the right people in the right roles. It is crucial to understand the capacity for complexity of those being appointed to positions within the new structure and to equally comprehend the same for individuals whose roles are disappearing. This way, you can make the most of your talent by strategically redeploying them to positions that align with their ability to manage complexity. We are not privy to how (or if) Citi is assessing the capacity for complexity of its managers and leaders as it reorganises but hope that it has some programme in place that allows it make informed decisions.<\/p>\n We recognise the importance of this alignment between individuals and their roles within the organisation. Our People Dynamics tools offer a unique perspective, enabling us to assess both people and organisations through the same lens. This creates a common framework for understanding the organisation’s level of value creation and an individual’s capacity for complexity. By gaining this deeper insight, you can make informed decisions about how to optimize your workforce, thereby unlocking the full potential of both your people and your organisation.<\/p>\n We place a special emphasis on understanding an individual\u2019s capacity to manage complexity as it is essential for optimizing their potential, promoting their well-being and ensuring that both they and the organisation can thrive in an ever-evolving and complex world. While it is integrated into our People Dynamics tool, it is the typical blind spot of most other assessment tools.<\/p>\n Please reach out and learn more about how VALPEO’s expertise can assist you in realizing the fullest potential of your people and your organisation. After all, it is not just about the structure; it is about having the right people in the right places, working together to drive success.<\/b><\/p>\n About Pratik Chandaria<\/strong><\/p>\n<\/div> Pratik Chandaria <\/strong>is a Partner at VALPEO. <\/b>He collaborates with executive teams to rethink leadership capability and organisational design through the lens of complexity and human value.<\/p>\n<\/div>
\nLet\u2019s explore these further.<\/p>\n1. Temporary extra layer at the top: Turnaround “rocket booster”<\/span><\/h2>\n
2. Permanent extra layer at the bottom: Resilience over efficiency<\/h2>\n
3. Emerging level of value creation at <\/span>the top: Upshift in complexity<\/span><\/h2>\n
4. Eighth level of value creation at the top: Societal transformation<\/span><\/h2>\n
In summary: <\/span>Citi’s leaner structure drives efficiency and performance<\/span><\/h2>\n
At VALPEO<\/h2>\n
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