The Four-Layer Rule

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When Tom Watson, Sr., ran IBM, he instituted a rule that may have been one of the greatest reasons for the company's success: never more than four layers from the chairman to the lowest level employee.

Four layers. That was it.

The rule recognized a fundamental truth about organizations: bureaucracy grows without anyone planting it. "You never set out to add bureaucracy," a Walmart executive explained. "You just get it. Period. Without even knowing it." The natural tendency when problems arise is to add another layer—another position, another checker, another fix on top of the original issue.

At Walmart, when merchandise wasn't getting priced correctly, they created "test scanners"—people who walked around stores with hand-held devices checking prices. Sam Walton hated it. He'd visit stores and ask if they really needed these folks. It was exactly the kind of layer Watson's rule was designed to prevent.

The better solution was fixing the source: overhauling back-office procedures so pricing was done right the first time. That eliminated one and a half positions per store. "Really it's a pretty simple philosophy," the executive said. "What you have to do is just draw a line in the dirt, and force the bureaucracy back behind that line. And then know for sure that a year will go by and it will be back across that line, and you'll have to do the same thing again."

Watson's four-layer rule was that line in the dirt—a constant discipline against the natural drift toward complexity.