In the late 1980’s, Townsend was interviewed – conversation style – by Tom Peters who is best known for co-authoring the best selling book on business, “In Search of Excellence.”
Townsend told the story of a study of similar-sized firms, competing with similar products, in similar industries. In successful firms, the managers (at equivalent levels of responsibility) had five times the signing authority that those in unsuccessful firms had. By “signing authority,” he means, how much can any manager buy on behalf of the corporation without having to go to a higher-up boss for an okay.
In my own experience, I was Sales and Marketing Manager of an $18M digital imaging computer product line that was part of a $100M firm going through some harsh corporate reorganization. I could not buy even a paper clip without, literally, the signature of the CEO or the CFO, even though I had twelve people reporting to me. They were out in the field selling and there were all sorts of expenses associated with that.
Some time later I went to a smaller firm that was growing like crazy and I reported to the CEO. I could sign for $5000 without asking anyone. That was 2001 and the firm was doing $27M. Today they are almost eight times as large in sales.
The reason, says Townsend, for the success of the firm with more signing authority (at equivalent levels of responsibility) across corporations is this:
The successful firms were more nimble. If they needed to buy some equipment or parts or organize something, they went out and did it, while in the firms that were more strict, the purchase orders would languish until some “Purchasing Baron” would okay it.
Nike had a motto, “Just Do IT.”
Firms tell their employees “just do it,” but the management speaks paragraphs through its signing authority just how much, or how little, they actually expect anyone to do.