When experts talk about strategies to achieve business success, team size is not a subject that often comes up in the conversation. Giant call-centres, large head office squads and vast employee units are generally the unchallenged norm. Yet this simple factor can play a significant role in an organization’s success.
Take the example of global travel retailer Flight Centre who grew from a simple bucket shop in Earl’s Court, London, to become a modern-day $4 billion dollar corporation on the back of a ‘Stone Age’ structure of small family-sized teams. Flight Centre’s CEO, Graham Turner, rates this unique corporate structure as the single greatest factor that has driven their transformation.
As he recalls, the organization first learnt about the damaging effect of the wrong team sizes twenty-five years ago when they opened a new Australian store in Melbourne. In its first year it had seven employees and made a profit of $200,000. In its second year, staff numbers increased to 11 and the store made the same profit as the previous year. In its third year, it grew to 16 employees and almost halved its profits to $120,000.
These results fly in the face of conventional thinking and basic economies of scale. Surely sharing the same costs over more people should provide higher profits. Yet the opposite occurred, not just in this one store, but time and time again. Flight Centre found that when team size increased over a certain number, productivity and profit suffered, even though per-staff costs were lower.
They discovered that when a manager had to handle a lot of people, these leaders simply didn’t have the time or energy to do this effectively. Building good relationships, team work, common goals and having constructive communication became near impossible. As an example you can see this splintering effect at dinner parties. When there are 7 people around a table everyone joins in a single conversation. Increase this to 15 and people split off and start to talk in separate units. That’s where the problems start.
This anomaly also occurred in Flight Centre stores in other regions, but it wasn’t until Turner read an article by London School of Business Professor Nigel Nicholson on Stone Age communities that he understood the reason for it.
The Hunter-Gatherer Effect
Nicholson explained that hunter-gatherers have existed for 4 million years, farmers for a mere 10,000. He argued that this has had a major effect on mankind’s preferred behaviour. Even though people today like to pride themselves on their modern rationality, their natural inclinations actually duplicate those of their prehistoric ancestors. Or, as the LBS Professor put it, ‘You can take the person out of the Stone Age . . . but you can’t take the Stone Age out of the person.’
After reading this article Flight Centre’s executive team decided to arrange the business to suit the way people inherently prefer to work. As the first organisation to consciously adopt Nicholson’s evolutionary theory, they restructured the entire company into Stone Age communities of families (teams of 5-7 people), villages (3-5 families) and tribes (about 150 people with a maximum of 25 teams).
The financial results were astounding The company doubled its profit in one year alone when it split its single Australian operation into 6 stand-alone tribes of 150 each (see below). Even though this whole process was counter-intuitive by normal business measures – a decentralized model, with higher overheads – the resulting explosion in staff engagement and ownership of their ‘local patch’led to profits that far exceeded these extra costs.
Even though the travel retailer continued to double in size every 3 years, the more focused units gave people a greater sense of belonging. ‘Families’ created their own vision and goals and came up with rewards for success. Each ‘tribe’ created an elaborate tribal identity with their own name and catchphrase, and competed against each other for results and recognition. One tribe spelled ‘New Zealand is number one’ with their bodies and filmed it from a helicopter to play at a conference. The Shockwave tribe pulled a 37-tonne 737-300 aircraft 100 metres along an airport’s runway to raise money for charity and enter the Guinness Book of records.
The system also became self-replicating. When a tribe grew bigger than 150, it was split in two so the company didn’t have to keep readdressing corporate structure. They could make big changes rapidly, without adversely affecting the culture. So while many organizations, governments and even councils amalgamate and centralize under the guise of conventional cost-saving rationale, what they are really doing is losing focus, and creating poorer outcomes. As Turner said, ‘I feel we would have been lost without Family, Village, Tribe. No matter how much we have grown and continue to grow, people still retain autonomy and ownership,’
The Science Behind ‘Family, Village, Tribe’
Neurological experiments also support this kind of Stone Age organizational structure. Apparently decision-making performance falls off rapidly as the group size grows beyond seven. The human brain simply cannot simultaneously retain and process more than seven ‘information chunks’ at once.
And these tribe sizes of 150 have also been reinforced by research. Robin Dunbar, professor of psychology at Liverpool University showed that there was a statistical correlation between brain size and tribe size, from small packs of not so bright monkeys to the large troupes of very smart baboons. Using this mathematical correlation Dunbar worked out that the ‘natural size’ of a human tribal community was about 150 members. This was apparently the limit of the social network that the human brain could contain and navigate. It’s not a coincidence then, that in our advanced digital age, the average number of ‘friends’ people have on Facebook is…..yes….once again 150.
Other Corporate Examples
The ‘Family, Village, Tribe’ system is now studied in university MBA programmes and has been replicated in other businesses with phenomenal success. Gore, Virgin, Semco and Atlassian are just a few of the companies that have adopted this small team strategy to improve performance. In fact Gore found it so useful that they only ever build office premises with 150 carparks. As founder Bill Gore told an interviewer, ‘When people start parking on the grass we know it’s time to build a new plant.’
For many organisations the challenge in practice is how to retro-fit the Family, Village, Tribe model into their existing, over-sized teams. The best solution is to pilot the structure in a single area of the business and look at the effect produced. The almost immediate results that flow out of these smaller team structures are:
- A strong sense of ownership and autonomy as teamwork and common goals are clarified, leading to improved employee morale.
- The critical team leader/employee relationship improves which increases engagement and decreases conflict and staff turnover.
- The bar for leaders can be lowered as smaller teams can be run by less experienced leaders. This is vital in fast-growth companies who often find it difficult to source a large supply of exceptional leaders.
- All of the above leads to bottom line improvement.
Once executives see the increased productivity and profits they are then keen to continue the process.
With the latest Gallup poll showing employee engagement is at an 8-year low and with good business leaders increasingly difficult to source, this is one strategy that can give organisations a giant competitive edge. As baseballer, Babe Ruth said, ‘You may have the greatest bunch of individual stars in the world, but if they don’t play together, the club won’t be worth a dime.’ Unfortunately many corporations only find this out the hard way.