How many units should be managed by an area manager in a service chain?

Over time, chains that have adopted ubiquitisation, have also increased the spans of control of area managers ie increase the number of units an area manager was responsible for. Exactly how great the increase varies from one sector to another. For instance, in the 1980s hotel chains had an area manager for every 5 or 6 hotels, restaurant chains for every 12 to 15 units, and pub chains for every 15 to 20.   By the 2000s this had generally doubled, so area managers in pub chains may now have responsibility for up to 30 properties.

However it is difficult to generalise as one study of area managers in the UK hospitality industry found a wide range of practice between different firms (see our Research Insight blog). The area manager’s span of control varied widely, from just three units up to 20. Likewise the organisation structure of firms, notably the levels of management from unit management up to CEO varied. The study suggested the influences on this variance in organisational form appeared to be:

  • strategic vision – either cost leadership or market growth through differentiation;
  • branding – single brand firms organise geographically, but multi-brand firms may organise by brand or geography or both;
  • age of firm – older, mature companies tend to have traditional hierarchies;
  • rate of growth – some firms adding new units, and consequently adding new areas or redesignating existing ones, do not modify the span of control, but others are increasing span;
  • geographical location of business units;
  • size of business unit – vary in a number of different ways – sales volume, sales revenue, operating capacity, number of employees and so on. There tends to be a close correlation between these factors, i.e. the larger the physical capacity of the unit the larger its sales revenue;
  • type of business unit – hotels, restaurants and pubs – have some distinctive differences;
  • industry norms – most sectors have a tradition of area management and a convention as to how many units should be assigned to an area; for instance the pub sector has wider spans of control than the restaurant sector;
  • uniformity of business units – units within firms may vary in size either because there is more than one brand or because of local market conditions.

The same study suggested that the area manager’s role is affected by:

  • span of control – varies widely (for reasons discussed above), so behaviour with respect to the frequency and duration of their visits to units will vary as a consequence;
  • levels of management – often only one level of manager between the area management and operations director, notionally at regional level or operations director level, and never more than two intervening levels;
  • relationship to other functional areas – human resources, sales and marketing, and accounts interfaces varied widely in terms of the size and within the firm, and in terms of reporting relationships;
  • organisational policies – branding tends to increase the level of centralised policy-making with the adoption of standards of performance manuals, operating manuals, rigid training programmes, and quality audits;
  • organisational culture – younger firms, tending also to be smaller, exhibited a culture based around the strong influence of the firms’ founder, whereas older and larger firms tended to be more bureaucratic, although increasingly trying to adopt a more task-based cultural orientation;
  • geographical location of business units, which affects the frequency and duration of visits to units.

If unit managers are assigned more autonomy and are empowered to run their own units and profit and loss accounts, then they do not need or want Area Managers breathing down their necks all the time. Hence the role of the Area Manager has developed to reflect this new situation:

  • Coaching – instead of focusing on the performance of the unit, the area manager tends to focus on the unit manager.       He or she becomes the main way for ‘coaching’ to be conducted ie one-to-one sessions with unit managers aimed at developing their eskills and expertise.
  • Consultant – the area manager also adopts the role of ‘consultant’ ie someone that can help solve problems, manage projects and provide expertise.

Of course, there were other reasons why firms adopted this approach.   Clearly increasing the area managers’ spans of control reduces the number of area managers that are needed, thereby reducing overhead costs.  Also new technology reduced the risk associated with less oversight by area managers.  Mobile telephones enable area managers to be contacted wherever they might be, so that they can effectively respond to urgent enquires or any crises that may arise.  Laptop computers and wi-fi also mean that area managers can undertake their administrative duties more or less anywhere, and in effect have a mobile office.   Point-of-sale devices and other automation also means that data about unit performance can be linked in real time to Head Office and in turn sent out to area managers.  Hence the profit performance of any unit can be identified and responded to on a daily, even hourly, basis.   Of course if area managers do check up on unit performance too frequently this mitigates against the idea that unit managers really do have autonomy.   In reality, area managers typically focus on the small number of units that have particular problems, which might derive from the location of the unit, the local labour market, experience or ability of the unit manager, or some other factor.

This entry was posted in Chap 14 Operations strategy, Sector: Entertainment & Sport, Sector: Financial Services, Sector: Hospitality & Tourism, Sector: Public Services & Charities, Sector: Retail and tagged , , . Bookmark the permalink.

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