Or: How do I organize my organization? Is there a magic formula? Which structures scale, how, and for how long? In this blog post, we summarize the “rule of thumb” of the power of 5, drawing on various sources. We’ll highlight typical patterns and levels of “organization” within this “power of 5” framework. Welcome.
The “power of 5” simplifies how organizations can be roughly characterized based on their size. The model starts with the 1-employee organization. In our model, it ends with the 5^9 organization—that is, an organization with a maximum of 1,953,125 employees.
The model offers guidance on how to structure organizations based on their 5th power and, above all, how to organize their collaboration. The model does not take into account the “type of work” or Development Value Streams. However, the model can be applied to individual Development Value Streams within an organization, or to chapters, divisions, business units, departments, teams of teams, etc. It is generic. In this blog, “the organization” always refers to the organization as a whole, unless otherwise noted.
The model is not, however, a “universal formula” and does not answer every question. As is always the case in team and organizational development, models must be adapted to the local context. Our consulting services support and accelerate this adaptation.
The model took shape during our Monday discussions. However, we can no longer pinpoint the exact derivation. It likely resulted from a spontaneous blend of our experiences, conversations, and scholarly engagement with the topic of organizational development. Furthermore, despite using language models and search engines, we were unable to find anything comparable to draw upon or build upon. We’d also like to thank our clients and partners, as well as former employers and competitors—without you, we wouldn’t be able to publish this. Thank you again.
A classic concept in organizational development, first hinted at in Drucker’s *The Practice of Management*, is the span of control. How many employees can a manager lead? Today, this number varies depending on the leadership archetype, for example. The “Player/Coach” has 3–5 employees, the “Coach” has 6–7, and the “Supervisor” has 8–10. In short, somewhere between 4 and 10 employees.
A “People Leader/Developer,” for example, can lead up to twenty employees in a purely personnel capacity. In the U.S., meanwhile, the span of control is slowly increasing on average. The agile movement, with its 5-9 rule, seems to be somewhat curbing the overextension of the (substantive) span of control.
We consider a 5^1 span of control (i.e., 1–5 employees) to be comfortable, and a 5^2 span of control (6–25) to be challenging. Depending on the “type of work,” leadership expectations, and responsibilities, it is possible to have 25 employees in a single team. Starting with a 5³ organization (26–125), “streamlining” becomes necessary.
This simplification does not take into account the four well-known dimensions of leadership:
The span of control may vary across these four dimensions if these four leadership dimensions are handled by different individuals.
Dunbar’s number originally comes from primate research. There, an anthropologist named Dunbar observed how many social interactions a primate can maintain at the same time. Dunbar then extrapolated this value to human interactions. The “mean group size” is said to be 148, rounded up to 150 for practical purposes. Another “experiment” involved a woman who had all her “friends” tattooed on her arm. Her arm had room for exactly 152 friends.
Within the agile movement, SAFe has further popularized this number. An Agile Release Train (ART)—that is, a train of three to twelve teams working on the same product or product context—is limited to 150 employees. The recommended number is 125 employees. This corresponds to a 5^3 organization.
In a 5^1 organization, you can maintain a close working relationship with every team member. In a 5^2 organization, this becomes more complicated—but it’s still manageable. In a 5^3 organization, you can just about still remember the names of all employees. Starting at 5^4, the group becomes abstract, and you interact only with individual nodes. You automatically fall back to a 5^1 team, organizing and identifying yourself once again in smaller cells.
Illustrations like this one regularly circulate on LinkedIn:
It counts the “interfaces” between team members. The number of interfaces can be derived combinatorially from the number of employees:
The formula is (n² - n)/2, where n = number of employees. Applied to the power of 5, this yields the following interfaces:
10 interfaces in a 5^1 organization are entirely to be expected for a salaried employee, despite a demanding private social life (keyword: economic exchange). 300 interfaces in a 5^2 organization drain social energy and limit private social capacity. And 7,750 interfaces in a 5³ organization are already nearly impossible. Yet leadership and organizational development are based on human interactions. Genuine leadership work cannot be delegated or automated; one must engage with the people involved and, in fact, “lead” them. The span of communication limits not only the span of control but also centralized organizational development in a “regular network” without “shortcuts” (“small-world network”).
The power of 5 characterizes your organization. It can guide you in your organizational development. A 5¹ organization must be structured differently than a 5³ organization. We simply want to highlight the obvious.
In the startup scene, people occasionally pass around the Startup Maturity Framework, which identifies the following stages of organizational size and thus derives organizational development topics:
This model, for example, is more finely differentiated than our 5th-power model—though it stops at the 5^3 organization.
We’ve learned that organizational size determines your organizational development to a certain extent and that functioning organizations are, of course, “limited.” More on this starting with the 5^7 organization.
On the one hand, the span of control was an inspiration. 5 is the “base unit”—the ideal number of employees one can or should lead. On the other hand, we felt supported by Dunbar. The model “aligns” with Dunbar’s findings in the 5³ organization. Similarly, Scrum confirms that 5 is the minimum team size. Or SAFe, with 125 members in an Agile Release Train.
We ultimately chose 5 because it reflects and scales the natural span of control for humans. A power of 4, on the other hand, would be too granular, while a power of 7 would be too coarse. For us, 5 symbolizes an “anthropologicalconstant.” People can collaborate intensively with ~5 people (team), loosely with ~25 (department), by name with ~125 (organization), and abstractly with ~625 (business unit). The power of 5 reflects precisely these leaps.
Below, we present the major organizational patterns and their challenges in the following groups of five:
The 5^0 organization is the simplest of all. No processes or coordination are necessary. Nothing needs to be documented. This one person does everything and can do anything. Any attempt to create structure here would be in vain. It is also the zero organization because no organization is necessary.
Incidentally, our personal hobbies, which we pursue on our own, are organized this way. Nothing is documented—the process is spontaneous and not really reproducible. One-person businesses work this way, too.
Ultimately, the transition to a 5^1 organization is a challenge for such individuals.
The 5^1 organization is much more interesting. It already requires a minimal model of collaboration to be reasonably functional. Two employees might still be able to agree “without words”—but once there are three or more employees, initial processes must be established. The first questions to ask are:
An organization’s need for “structure” can also vary depending on its life cycle. Young organizations start out with either deliberately “too much” structure or deliberately “too little” structure. Organizations that start out with too much structure become more informal over time as they become more established—and organizations that start out with too little structure do the opposite.
At the same time, individuals also have different needs for “structure.” Some people in the SDI need a process for absolutely everything (“blue”), while others thrive in a process-free environment where they can stand out as “orange” heroes. The 5^1 organization must explicitly negotiate these individual needs.
The 5² organization is very challenging. It likely still relies on lean processes from the 5¹ organization – and she’s already mentally preparing herself for the 5³ organization. The 5² organization can be managed just fine without a hierarchy or other functional structures. It may simply be a large, team-like entity with different roles. All employees have a reasonably close working relationship. They feel at ease, still like a “gang”; they’re connected and committed; there’s a sense of warmth and comfort all around.
However, there is always the threat of increasing structuring. Processes must be documented, and compliance with them must be verified for the first time. The first employees must become specialized. The first employees automatically assume leadership and responsibility, while other employees gratefully go along for the ride. A natural division of labor characterizes the organization.
Organizational development here is primarily about group dynamics, because all employees are closely intertwined through intense working relationships.
Unfortunately, many organizations that were originally founded as 5^2 organizations fail to make the systematic transition to a 5^3 organization. Examples include organically grown family businesses that have been managed very flatly and intuitively as 5^2 organizations by the head of the family (gender-neutral)—but have failed to implement the necessary 5^3 structures.
In a 5^3 organization, the organizational chart suddenly becomes important. Who sits where, who reports to whom, or is “merely” assigned to whom. Initial thoughts about a matrix organization begin to take shape. The 5^2 organization, by contrast, serves as a “place of longing,” a romanticized example of a supposedly functioning organization. Typically, people try to delay the implementation of the 5^3 organization for as long as possible—or, conversely, to anticipate it prematurely and unnecessarily.
Once an organization reaches the 5³ level, generic core organizational functions can no longer be organized on a militia-style basis. The first HR departments, finance departments, and/or controlling departments gradually begin to emerge. The so-called “bureaucratic bloat” of an organization begins to take shape.
Collaboration models must now finally be formalized. All roles within this organization must also be documented in writing. The organization becomes “more serious.” However, its maturity will not be assessed until later.
The 5^4 organization determines an organization’s managerial competence. What still worked reasonably well in a 5^3 organization must be reevaluated in a 5^4 organization at the latest.
For example, joint company events are no longer possible. You also no longer fit into a larger ski lodge. Town hall meetings and all-hands meetings become more complicated. It’s also likely that you can no longer accommodate all employees at a single location.
The salary range is also widening. A now-specialized management caste is emerging. Processes are no longer merely documented in semi-formal wikis but are modeled in professional process management tools and solidified through review procedures.
The organization itself has already attained a certain status. It is no longer a microbusiness. It pays taxes. People take notice; suddenly, the company is important and significant. Invitations to various events and sponsorship requests are piling up.
Now one must balance between formalism and informality, between over-organization and under-organization. The former 5^3 root of this 5^4 organization is certainly still recognizable.
As a family business, the organization can no longer be run entirely by family members. The first “external” employees must be hired for leadership positions.
The board of directors in a corporation is no longer a mere formality, but a respectable and serious office. The first committees within the board of directors must be formed, usually starting with the so-called audit committee.
Organizational development is also emerging as a legitimate discipline. For the first time, external consulting services must be sought. What management used to be able to handle on a part-time basis must now be professionalized. We have supported numerous 5^4 organizations that have organically grown into 5^4 organizations—but were still being managed, emotionally and intellectually, as pragmatic 5^3 organizations. In those cases, we had to purposefully “add” organizational structure; minimal structural support was enough to quickly stabilize such fledgling 5^4 organizations. After all, formally speaking, they are no longer SMEs.
The 5^5 organization is less common in Switzerland. There are only 2,141 companies with more than 250 employees. Unfortunately, statistics do not provide further details on these larger companies, so we must make educated guesses here.
Service companies such as insurance firms or banks (with the exception of the last major bank, UBS) are typical 5^5 organizations. Their organizational structure is already complex. The executive management team at such a company can already consist of 11 employees. These organizations no longer idealize the 5^4 organization but are oriented toward the 5^6 organization —which increases the likelihood of over-organization.
Because a 5^5 organization is already organized in an overly complex manner, it generally lacks a “corrective mechanism” capable of eliminating the excesses of over-organization. “Bureaucracy” flourishes and gradually becomes unstoppable. Numerous internal guidelines drive up the cost of value creation and lengthen the turnaround time for tasks. The 5^5 organization feels “big” and “important.” The organizational structure has taken on a life of its own.
From this point on, the organization gradually becomes impossible to truly manage. The first powerful departments and divisions emerge, taking the initiative. Multiple paces of operation within the organization become entrenched. Some departments and divisions declare themselves “independent,” much like the digital divisions of traditional service providers did ten years ago. The first major secondary locations emerge, for example, on the outskirts of large cities or in offshore countries. A completely different “culture” develops there.
Internal communication within such 5^5 organizations remains highly centralized. A well-resourced internal communications team strives to reach all employees through various formats. Efforts are made to foster a sense of belonging. These include, but are not limited to: lunch dates, sports activities, company parties throughout the year, networking events, and basic internal training—all of these measures are designed to help employees identify more closely with the 5^5 organization.
Of course, these measures still bear fruit within a 5^5 organization. People are capable of and willing to form diverse relationships and network across departments. Yet at the upper end of the 5^5 organization, the 5^6 organization reveals itself.
The 5^6 organization is gradually coming to be regarded as a “corporation.” The first “corporate functions” emerge. The 5^6 organization is clearly recognizable as such; it no longer glosses over its history as a 5^3 organization. It strives—it is entirely “Faustian”—a restless pursuit of more, of size, and of “organization.” Long-time employees, who still knew the conglomerate as a 5^5 or even 5^4 organization, warn against excessive bureaucracy. Group functions, in particular, are being rapidly expanded. Group Controlling, Group Communication—followed by Business Unit Controlling and Zone Controlling—are established. Internal power struggles are gradually being played out more openly. Group functions are often “resisted” at first; the formerly powerful main departments do not want to be managed or controlled.
Such 5^6 organizations are the last ones that an employee can barely make sense of; starting with a 5^7 organization, organizations become merely “magical,” enigmatic, mutating into cyberpunk-like “corporations” that are barely controllable and can no longer be represented by humans. Countless fantasy roles within these 5^6 organizations adorn the profiles of numerous LinkedIn influencers. In everyday life, you don’t really know what you’re doing; you sometimes feel guilty because of the obvious overpayment and feel alienated (orwork without meaning)—but as long as you’re reasonably “busy” with meetings between 9:00 a.m. and 5:00 p.m., you manage to cope somehow.
“Fake work” emerges, accelerated by AI. The 5^6 organization is what makes fake work possible in the first place. In a 5^6 organization, you can now “hide” or “make yourself look important.” “Hiding” means effectively refusing to do the work, just going through the motions; you delegate and procrastinate, managing work instead of getting it done. “Making yourself look important” is “hiding,” plus exaggerating your own lack of productivity. You scurry about, whirl around, invite yourself into work groups and projects—preferring those that have to work “on the system”—create PowerPoint presentations, rave about contacts with senior management, and have “visions.”
The majority of employees in such 5^6 organizations work more or less diligently. Generally speaking, however, no one would even notice if 20% of the workforce were absent. This is because the internal processes and procedures are designed so that everyone is kept busy in some way. Such 5^6 organizations worship “full employment.” This means that all divisions, departments, etc., must be involved in some way at some point. Every initiative, every idea, or every project goes through slow consultation cycles within the organization. These consultations are also regulated and generate additional important jobs in corporate functions. Only in much larger organizations, such as 5^8, can the desire for greater autonomy prevail once again.
As an employee, you’re “proud” of your growing “corporation.” You can express your affiliation on LinkedIn or at cocktail parties. This helps you endure the hardships of everyday work life. Just as it was with the plebeians in historical empires. But as in historical empires , it is the circumstances that shape behavior here as well .
5^6 organizations tend to grow faster because size does matter. It’s the arena of large portfolios and M&A. Employees either come from smaller organizations—or were swept in from a >= 5^7 organization during the last reorganization and now want to make everything better and even bigger.
Although organizational development is institutionalized as a discipline within a corporate function, it no longer permeates the organization itself. It is merely a formality—an orchid that the corporation now proudly cultivates—but one that is ineffective. Concepts are generated, ideas are tested in isolation, and resources are effectively squandered that could be put to more effective use elsewhere. Organized organizational development is phasing itself out—without anyone noticing or objecting.
Organizational development is gradually retreating into small, intimate spaces. And with that, the 5^7 organization is on the horizon.
Switzerland’s largest employers are “merely” 5^7 organizations. A number of government entities dominate a list compiled by CH Media:
Strictly speaking, therefore, there are only twelve 5^6 organizations in Switzerland.
Migros and Coop certainly need to be viewed in context. Their branch-level organizational structure, which resembles an “organization within an organization,” makes them atypical examples of a 5^7 organization.
The SBB is also worth mentioning. The SBB is more akin to a conglomerate; it provides a wide variety of services—ranging from passenger and freight transportation to power plants and (for now) a GSM network —which can still be loosely grouped under the slogan “Moving Switzerland.” The Federal Administration can also be excluded from this discussion.
According to the NZZ, all seven departments are completely distinct from one another in terms of culture and mission. Apart from top-level positions (e.g., deputy secretaries-general), the average federal employee remains loyal to “his or her” department. Few services are centralized, such as IT at the BIT. Most departments are manageable 5×5 organizations; only the DDPS is large, as a 5×6 organization.
In the cantons, too, hospitals and schools are (unfortunately) sometimes included in the count—these are also, in fact, completely independent units that have little to nothing in common with the overarching organizational structure, except for the email domain.
And depending on one’s political perspective, Swiss Post and Swisscom also resemble “conglomerates” that are structured with a high degree of autonomy. Swisscom’s dedicated IT service provider uses only Swisscom’s brand and infrastructure—otherwise, it is independent and operates as a classic strategic business unit.
The only remaining “natural” 5^7 organization, UBS, is in fact a global 5^8 organization with a high proportion of operations in Switzerland. However, UBS maintains “around 200 branches and 4,600 client advisors.” Assuming an expected front-office-to-back-office ratio of 1:2, that would amount to just under 10,000 employees working directly for the Switzerland region. The UBS matrix organization, with its global business units and corporate functions, certainly employs the remaining 24,182 employees—though in practice, they work in collaboration with the rest of the global workforce.
However, Switzerland is home to large corporations that form a solid 5^7 organizational structure globally. Schindler is a prime example of this 5^7 structure. Schindler employs 69,000 employees worldwide. Schindler is no longer a conglomerate. Two product groups—elevators and escalators—simplify the portfolio. Needless to say, installers, fitters, and service technicians dominate the employment structure. They operate in nearly every country—with the exception of Japan, as the NZZ reports.
Schindler strives to project a unified identity and mission to all employees. Given the “simplicity” of the product and its universality, this is likely to succeed. Paolo Compagna, Schindler’s current CEO, must also strike a balance between dominant national subsidiaries (including China) and self-assured corporate functions (including the CIO and CTO).
Such 5^7 organizations are challenging to manage. This is compounded by the fact that they are, by their very nature, globalized. The executive board alone can represent all regions of the world. Typically, this executive team is not located in a single building but is spread out. Their space for group dynamics is limited—which can lead to other problems within the executive team. This executive team barely reaches the employees anymore. In 5^7 organizations, there are often as many as a hundred vice presidents (VPs) directly below the executive board, each leading their own divisions—relatively independently and in constant conflict with others where responsibilities overlap. They also compete for investment funds and for the favor of the executive leadership, and are in constant competition with one another—whereas the executive leadership revels in a certain nonchalance and relaxed demeanor, taking pleasure in its lofty position.
Organizational development in 5^7 organizations is limited to the individual divisions of these powerful VPs. They can change and shape their divisions with a degree of autonomy and exemplify a “leadership culture” at the local level. All of these areas engage in both internal and external organizational development. This is because the organization as a whole can no longer claim to permeate the entire organization. Organizational development thus breaks down again into the small and the local. At least it breaks free from the paralysis of the 5^6 organization.
The same study by CH Media classifies the following companies as 5^8 organizations when considering their global workforce:
The executive management of a company like Nestlé, for example, is considerably broader and more complex than that of Schindler. It has several types of executive management appropriate for a company of this size:
The Executive Board alone illustrates the organizational complexity of this 5^8 structure. Collaboration between Nespresso and the functional and geographic divisions must be agreed upon and regulated. Nestlé may grant greater autonomy to other product groups during selected phases of product development. Alternatively, Nestlé may act directly as a venture capitalist—investing in companies, integrating them later, or divesting them. Even the management and, ultimately, the deployment of substantial venture capital require organizational skill to ensure that these activities align with the strategy of the organization as a whole.
Nestlé’s well-known product portfolio requires comprehensive internal portfolio management, which is also entrusted with controlling tasks to aggregate and ultimately manage the effectiveness, profitability, and life cycles of individual products and entire product groups.
This broad management structure must be meticulously coordinated. Even the smallest local optimization in a geographic division or elsewhere can disrupt the fragile organizational system, thereby causing extended lead times, additional costs, higher error rates, and/or dissatisfied employees—and possibly customers as well.
As with a 5^7 organization, organizational development is completely localized. No one claims to be responsible for developing the entire 5^8 organization. That would be presumptuous. Prof. Dr. Olaf Geramanis referenced Adorno’s *Minima Moralia: Reflections from a Damaged Life* on LinkedIn, presumably to highlight the dilemma of organized organizational development. Geramanis, drawing on Adorno, summarized:
Those who want to save what is human in organizations organize it to death.
In 5^8 organizations, organizational development is caught precisely in this dilemma. If it wants to be effective, it must organize—and ends up over-organizing everything. Or it retreats into the small-scale local level; back to the VPs.
We have never worked for a 5^9 organization. Everything that follows is an extrapolation. There are no 5^9 organizations based in Switzerland.
A classic 5^9 organization with a pronounced matrix structure is the U.S. Armed Forces: specifically, approximately 1,400,000 active-duty service members. This requires extensive organization. A 5^9 organization is highly decentralized. Major Western armed forces are typically organized functionally (bymilitary branch) and mission-oriented (CCMD) within a highly complex matrix—supported and supplemented by civilian internal and external service centers, suppliers, and national and international partners.
No single person can cognitively grasp such an organization. It is impossible to keep track of all organizational units in all dimensions or to hold them together in any meaningful way. Similarly, it is impossible to develop any sense of community. In large armed forces, individuals identify primarily with the unit on the mission and secondarily with the branch—everything else feels distant and abstract.
Such 5^9 organizations must combat the alienation of their employees. A successful example was the U.S. Apollo Program. Over 400,000 employees were involved. However, the Apollo Program was very rewarding; it had a fixed timeline due to political pressures, and all employees could easily be aligned behind a common goal. Whether such a project could even be managed today is a far more intriguing question—one answered by fictional series like*For All Mankind*.
As an exception, the (primarily) Asian conglomerates confirm the rule: jaebeol in Korea or keiretsu in Japan. These organizations strike a balance between a shared identity and the greatest possible autonomy. Conglomerates may specialize in different sectors but share common services such as branding, finance, IT, and procurement. Furthermore, the keiretsu in Japan are formally independent legal entities. They were legally dismantled after the end of World War II—similar to how the U.S. handled the large I.G. conglomerates in Germany, which at the time also corresponded to massive 5^9 organizations.
Conglomerates are manageable because they can be broken down into individual product groups. A bank is then “only” a 5^6 organization; the shipbuilding division a 5^7, and the IT services division a 5^6. This makes such organizations “manageable” because the individual divisions strive for the greatest possible autonomy and can thereby create a sense of purpose and identity.
A rhetorical question might be: Are organizations consisting of 5⁶ or more units still even reasonably “manageable”? The need for concentration of power in large conglomerates, economies of scale, and global penetration—as well as the need to mobilize against competitors, particularly those from Asia, which are far larger—can be rationalized.
Organizations with >= 5^6 units can only be managed hierarchically and centrally. They embody the administered world, from which human beings become completely alienated. Such organizations are therefore, by definition, “inhuman.” People are reduced to commodities, personnel numbers, and business transactions. Organizations with >= 5^6 members no longer have a human face. They have taken on a life of their own and pursue “greatness” in a thoroughly Faustian manner. Only personified power can occasionally “rejuvenate,” “refresh,” or “correct” such organizations. In publicly traded companies, power is naturally distributed because ownership is dispersed. A single person, therefore, cannot “crack down” like Caesar and “change” everything. Not all transformative efforts can bear fruit. Organizational development is confined to a small scale and dependent on the favor of a local VP.
Only the world’s family-owned businesses offer opportunities for genuine organizational development—as understood in the Western sense—and thus for leadership. In these organizations, the family has retained sufficient “power.” The family could assert itself, mandate changes, and steer them sustainably—it would also have sufficient foresight to accompany and foster changes over the years. Incidentally, the largest family-owned business in Switzerland is MSC. It is one of the few 5^8 organizations in Switzerland. Little is known about the family surrounding patron Captain Gianluigi Aponte. But there, at least, organizational development at a 5^8 level would be technically conceivable. Aponte can develop his organization through guidance because he has the power. He can lead by example; in other words, he can inspire and motivate as a role model.
Organizational development in >= 5^6 organizations remains confined to their own sphere, under their VP. There, however, the organization can certainly be developed, as long as the scope and ambition are planned in accordance with reality. We prefer organizations with 5³ to 5⁵ employees: either as the entire organization or as a division of a larger organization. We vary our chosen techniques and approach according to the power of 5.
With sufficient leadership, organizations can be developed; specific issues can be addressed, structure can be added or removed, roles can be clarified or combined, and coordination channels can be shortened and simplified. However, organizational development must be appropriate for the organization and its size:
Together, we’ll develop the right level of organization for your organization—meaning people-oriented structures and processes to improve delivery capabilities and reduce lead times. Organizational development remains possible.