Academic journal article Research-Technology Management

The Flattening of the Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies

Academic journal article Research-Technology Management

The Flattening of the Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies

Article excerpt

Raqhuram Rajan and Julie Wulf; National Bureau of Economic Research Working Paper No. 9633; Oct. 2003.

Corporate management has indeed been flattening. Evidence from top managers at more than 300 U.S. companies represented in the Hewitt Associates compensation survey shows that the number of managers who report directly to the CEO has increased from an average of four in 1986 to an average of seven today. The number of division heads who report directly to the CEO has increased by 300 percent. At the same time, the number of levels in the management hierarchy between division heads and CEOs has declined by 25 percent.

Rajan and Wulf show that these patterns do not simply reflect a change in corporate structure, whereby companies have regrouped into fewer, larger operating divisions; regardless of the changes in size, management ranks are becoming flatter. Further, more divisional managers are being appointed officers of their companies. These findings suggest that layers of intervening management are being eliminated, and that the CEO is coming into direct contact with more managers in the company, Rajah and Wulf say. …

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