Tentacles of the Spanish crisis now grope for middle management

Companies are slimming down their organizational structure, cutting out the hierarchy

Wind turbine parts made by Gamesa, which has reduced the size of its management structure.
Wind turbine parts made by Gamesa, which has reduced the size of its management structure.

The economic crisis and accompanying destruction of jobs has also sparked a seismic shift in the organizational structure of Spanish companies. A profound change that started with layoffs at the bottom of the pyramid but that is now affecting echelons that are higher up.

The end result has been the introduction of more horizontal management models with fewer layers in the hierarchy, as evidenced by the Spanish division of international executive recruitment consultant Odgers Berndtson in a study titled Forty keys to building a winning management, based on 232 interviews with chief executives of companies in Spain. The conclusion of the study is that 79 percent of these companies have changed their business culture.

One of the consequences of the reorganization has been the elimination of "political" posts, with little direct connection to the business in itself, and intermediate positions, says Odgers Berndtson partner Luis Soler. "European vice presidents and managers are in danger of extinction," says José Medina, the chairman of the consultant in Spain.

The departments that have been most affected by this flattening out of the organizational structure are commercial (in the case of 64 percent of companies); operations and logistics (47 percent) and corporate strategy and development (40 percent).

Leading oil company Repsol has got rid of a human resources director, with another official taking responsibility for personnel

"Companies are looking for greater efficiency and speed of reaction to the market," the director of the consultant's headhunting department, Marcos Sanz, says. Slimming down has taken place in human resources, finance, technology, support and other areas, with a large part of the duties these departments carry out being subcontracted. "With this flattening out, positions have become surplus and these can be absorbed by other departments with a bigger profile," Sanz explains.

Leading oil company Repsol, for example, has got rid of a human resources director, with another official taking responsibility for personnel and technology. Wind turbine manufacturer Gamesa has also reduced its top management and executive committee "in order to create an organization with a global vision of the business that facilitates decision-making." Layoffs as a result of a fall in sales in wind turbines in Spain have now been extended to all of the group's structure. In the case of food manufacturer Grupo Siro, directorships such as human resources have disappeared.

"The lifestyle of a director has changed a lot in the past five years," Soler says. "For example, they have had to preach by example, reduce their salaries, travel less and more cheaply and use less expensive cars. They have also had to get their hands dirtier."

"The only directors that have gained through this organizational flattening are those that have never stopped visiting customers," Sanz said "Those that in addition to managing get down in the mud. Either you're a business person or you move to a technical level." This has been particularly the case in the services sector and in consulting, for example.

With the dramatic fall in domestic sales, regional offices have either disappeared or have been reduced to a minimum, above all in the financial and insurance sectors.

The pharmaceutical sector has also had to tighten its belt. "The economic situation is affecting us a great deal," says Telva Arroyo, the human resources director of Merck's Spanish unit. "Prices have fallen and sales have become more difficult. This, along with the need to get closer to the client, has led to a flattening out of our structure. There is a level of area managers that currently doesn't exist."

Some multinationals have opted to concentrate their regional structure by grouping units around areas such as Europe, the Middle East and Africa, while others have opted to recentralize activities in the company's headquarters.

The latter has been the case for South Korea electronics giant LG. "We have eliminated our regional structure in order to concentrate activities in the headquarters in Korea," explains Carlos Olave, the human resources director of LG's Spanish unit. "For example, the duties of the European human resources division have been taken on by the global vice president for this area."

José Luis Ruiz Expósito, who is in charge of markets for consultant Ernst & Young, says there is a big difference between how service and industrial companies have taken on board the transformation. "The latter, where the production center is very important, flattened the base of the pyramid. Thereafter, they eliminated intermediate posts in order to avoid creating big bottlenecks, and the workforce is slimmed down from 1,000 to 300."

Expósito says the result of this is that the role of the general manager is downgraded. In the case of service companies, office staff are the first area to be cut back, with services externalized in order to reduce costs and gain efficiency.

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