When the ratio of managers to productive people exceeds a certain level, organisational collapse inevitably follows

When the ratio of managers to productive people hits a certain level, organisational collapse inevitably followsPhoto: Shutterstock

Written in a coffee shop in Cartagena, Colombia, and dispatched to silicon.com via a free 25Mbps wi-fi link.

Societies have never been good at moving from one big tech-induced change to another.

The industrial revolution wrought havoc on populations. Production lines were thought to dehumanise people, and modern agriculture is still vilified, instead of being celebrated. And people now worry that technology will drive us towards some singularity where people are no longer required.

We are talking mass unemployment, people replaced by machines, old ways and conventions abandoned, history and tradition rendered worthless.

And it has always been that way, but it’s never been so rapid and never on such a scale. Short development times and automated manufacturing can now invoke massive change in less than two years.

Will this race ever stop? Not a chance. Can we learn to adapt faster and minimise the social disruption? I doubt it.

Our political, education, social systems and institutions are rooted in a past going back more than 200 years. Such systems are almost impossible to change and sooner or later we will have to restart from a clean sheet.

It’s as if jobs are going out of fashion. The dwell time of managers is now about two and a half years while people hang onto a job for only about five years.

Recently published figures from the US Bureau of Labor Statistics show between 0.9 per cent and 2.5 per cent of the workforce just spontaneously decide to quit. In a time of prolonged recession these figures are surprisingly…

…high. For example, in the trade, transportation and utility category, resignations are occurring at a rate of 474,000 per month or so, while in IT the figure is 35,000.

Apparently, a large proportion of those quitting believe that they can get a better job elsewhere, but what of the rest?

Many cite oppressive and excessively demanding management regimes. And certainly the evidence is that the ratio of managers to active contributors and material expenditure has grown excessively, as depicted in this graph for one first-world nation.

This graph shows how the ratio of managers to active contributors and material expenditure has grown excessively over the past 50 years

The ratio of managers to active contributors and material expenditure has grown excessively over the past 50 yearsPhoto: Peter Cochrane/silicon.com

But this graph tells a fraction of the story, with many countries having between 40 per cent and 55 per cent of the working population employed by government.

This phenomenon raises two key questions: how big can the management population become before a company collapses, and how big can government become before a country collapses under the non-contributory bureaucratic weight?

My guess is that it will turn out that a ratio of management to productive people of about 55 per cent will do the trick.

How come? Certain EU countries have been plunged into huge debt by the same mechanism and are effectively bankrupt. Some companies have also collapsed at about this level.

We might have expected technology to reduce the number of managers everywhere, but the number just seems to keep growing. Startups are the exception, along with modern companies, and biological organisms – all of which appear to be stable and get by with single-figure overheads.

However, our technology and software are often worse in their impact on overheads, and therein lies a big opportunity for engineering to the lowest possible overhead.

I have only found a few examples of this opportunity being seized, but whenever I do, the company and the product have always turned out to be exceptional.

As a general principle, to be more creative, efficient and competitive, we need far less management in companies, government, and indeed in our electronic systems, and not more.