Tag Archives: Office cost containment

Why Don’t Companies Base Head Count on Meeting Customer Requirements?

 

I just read two news articles this morning of the type that make me gnash my teeth and shake my head. Both involved Fortune companies planned to cut staff by the thousands based on bad financial results. Say what? To these companies, I ask, “Why were you carrying so much excess staff you could do without?”

Most service companies carry double-digit percentage excess staff. Likewise for product companies in their back and front office settings. How do I know? Process redesign, streamlining in particular, plays a primary role in helping clients meet and exceed customer requirements. And we constantly find excess staffing over-distributing decision-making authority, leading to employee disempowerment and creating excess bureaucracy, both of which drive customers nuts. Today’s customers want to deal with well-trained, empowered employees and as few of them as possible – and on the web an increasing percentage wants to research and order commodity goods without any personal contact.

So how does head count typically change after streamlining? By a negative 15% to 20%, in our experience. But rather than streamlining, most organizations throw people at problems, and the more they add the less efficient and effective work becomes. So instead of streamlining to create a win-win for both company and customers, they create lose-lose by overstaffing.

Why do they do this?

Layoffs – Where’s the Learning Curve?

One touchy subject inevitably arises when we design customer-centric process. And I hate to see it happen.

Redesigning process from the customer inwards produces an ancillary “benefit,” which to many execs becomes their short-term ROI justification. While new process designs are adding new value to customers, they’re also streamlining the organization, which can dramatically reduce front and back office FTE requirements, raising the specter of layoffs.

While we always consul clients to first consider using temporary functionless staff for special projects, then reabsorbing them to create “no hire growth,” some layoffs inevitably occur. One of our clients, post process redesign, eliminated 600 front office positions, and our process reworking contributed to the eventual closing of multiple plants. Worse yet, overall demand in their industry was declining, leading to very slow growth.

Two things really bug me about this situation. First, too many companies practice “boom or bust” staffing. They lurch from overstaff to understaffing, because they don’t have a clue how to avoid either excess. Second, necessary layoffs often cut people but not their functions or positions. Process streamlining should reduce functions and positions and does not target specific workers. And in neither case are they learning anything from experience. They just keep repeating their destructive practices.

Not a pleasant topic at all, but I just read an excellent post an excellent post by Ron Ashkenas (co-author of “The GE Workout”) that spot on addresses both things that bug me. If the subject’s relevant, I strongly suggest reading it (link below).

http://tinyurl.com/c329on8

Confusing ISO with Process

Can companies with inefficient, even “broken” process successfully go through ISO-certification? Over the years, I’ve encountered a number that have, which answers the question for me. ISO certifies that quality standards are in place, but it’s a poor indicator of how high the standards are and whether they’re the best the company can do. ISO certification also fails to gauge whether process has been designed to optimize customer experience, despite including numerous customer-related standards.

Nevertheless, organizations frequently confuse the two. Any thoughts on why?

Does redesigning process to cut waste produce similar outcomes to redesigning process to improve customer experience?

Before you protest, I do understand that waste-cutting process approaches can be applied for the benefit of customers. But here’s the difference I’d like to highlight.

Waste-eliminating approaches change internal operations – albeit increasingly to benefit customers. In contrast, customer-experience focused approaches changes what happens at points of customer contact and works its way back inside the company, almost in concentric rings. While customer-sensitive, waste-focused process approaches work from inside the company outwards towards customers, trying to add more customer value at every step – customer experience process methods move in the opposite direction.

I’ve designed process both ways, depending on context. But I do find the outcomes radically different – with customer-experience-based process design triggering far more organizational change and involving much more application-layer technology support (which is not appropriate for every context).

How does my experience square with your hands-on process work? And I hope this doesn’t sound exclusionary, but this is such a ground-level experience that I’m especially interested in comments from experienced process practitioners who have “been there,  seen that” for themselves.

Poor Office Process, Poisonous Office Environment (and costs that will send you into toxic shock)

 

Are engineering and sales pointing fingers at each other? How about customer service and parts? Or HR and branch locations? How about sales and marketing management? Or IT and the rest of the front and back office? Okay, you’re like any other company. But do you have even the slightest sense of what all this dissonance is costing you?

Probably not. In which case you ought to grab or access the April 2009 edition of “Harvard Business Review” and read some sobering data. Very sobering.

April’s HBR features a very pithy one-page abstract by Christine Porath and Christine Pearson, How Toxic Colleagues Corrode Performance, which may very well peel back your eyelids. Their data alone might scare you into action–including running some toxic employees out of town.
You can’t fire the problem

But here’s the irony. Just firing these people won’t accomplish much, because a new set of “bad actors” will quickly fill their shoes. A relatively small percentage of inherently dysfunctional folks notwithstanding, the vast majority of these toxic employees didn’t start off toxic. Instead, their work environment created interpersonal strife by giving people and functions conflicting messages and conflicting goals, and they eventually succumbed to the venal side of human nature. 

The primary culprit is bad work design, not bad people.

That’s the case in almost every one of these toxic situations we’ve walked into over many years of consulting. Poorly designed office process creates conflicting sets of personal and functional interests, and when people and functions pursue their self-interests, the sparks fly. That, in turn, brings out the basest human instincts in some; causes others to withdraw or flee; pushes people who can get past their self-interests into the line of fire (punish the innocent); creates discord everywhere; triggers retribution–until the whole office goes dysfunctional. And then the company cans a few perps, only to have new ones almost immediately step up to the plate.

That’s usually the time when clients engage us–when it becomes painfully obvious that replacing people isn’t the answer–and eliminating sources of toxicity is. Unfortunately, a considerable amount of damage has already occurred.

But isn’t this the norm?

Hey–every office is a bit dysfunctional, no? So why get all bent out of shape? Here’s where Porath and Pearson really shine. While I don’t want to violate HBR’s copyright, I will give you this juicy quote:

Berating bosses; employees who take credit for others’ work, assign blame or spread rumors; and coworkers who exclude teammates from networks–all these can cut a swath of destruction visible only to the immediate victims.

Visible only to the immediate victims, perhaps, but damaging the entire company, especially the bottom line.

How much damage?

Unfortunately, the authors lack the data to convert negative employee behavior into specific dollar costs, but they have quantified the frequency of different types of negative employee reactions to office dysfunction. From there, it doesn’t take much imagination to project whether the size of the dollar loss is a golf ball, a baseball, a softball, a soccer ball or a basketball. It’s a damn blimp!

How employees react to dysfunctional office environments

Again, I don’t want to give away the goods so you won’t go buy the magazine, especially because the article is only a page long. But between 80% and 38% of employees reported specific reactions ranging from loss of commitment to the organization to decreased work quality.  From a process designer’s perspective, when I add it all up it’s not a trickle, not a flow, but a damn gusher of dollars flowing out the door.

But since we’re in a recession, we can afford it, eh?

Streamlining Your Front & Back Office to Save Salary Dollars

Deep recessions put a double whammy on businesses. First, most companies have to reduce staff. That’s a given. But they need to do it right to reap the full savings. Unfortunately, the majority start downsizing much later than business conditions warrant. Plus they typically stab deep into flesh while trying to trim out fat–as evidenced by the frequency of companies slicing off customer-facing employees, only to start losing customers along with service staff.

Second, when not made correctly, substantial staff cuts reduce scalability, compromising capability to spring on new opportunities. So companies suffer now, when they cut–then suffer again when either recession-driven opportunity pops up or economic recovery kicks in.

Isn’t the recession bad enough by itself?

But wait, it gets worse. While most manufacturing companies at least know how to reduce production employment in a half-way rational manner, even if they don’t always show it, the vast majority of front and back office managers and service company managers don’t have a clue. Nor should they, because the concept of designing office process with the same rigor we apply to manufacturing process–using a process approach designed for highly variable office environments–is a foreign concept throughout business. Most office process change efforts consist of cramming manufacturing process methods down office throats–only to have office and service staff regurgitate everything process they’ve been fed.

It can get so bad that at one of our past clients multiple office people would stand and flip the bird to the six sigma team as it retreated to its hovel.

 

Cutting the office workplace down to size

Mistake #1 in office process redesign is trying to squeeze out every last penny of “unnecessary” cost–which, ironically, tends to lower the ratio of work done per salary dollar spent, the exact opposite of what’s intended. Creating a Spartan office environment reduces work quality, increases the volume of repair and recovery work, creates bottlenecks that lower throughput, and kills morale. It also kills customer relationships. Sprint tried this approach and so turned off customers that it’s single handedly fueling the growth of both AT&T and Verizon.

A  Aligning process to strategy and technology to process

Smart companies facing a deep recession don’t practice “scorched earth” cost-cutting. They understand the first obligation of office staff is to carry out business strategies. When process fails to align properly with strategy, the two elements work at cross purposes–creating inefficiency, internal friction and customer flight. Plus, process–strategy misalignment increases the quantity of non-value-adding work performed, which increases the number of non-value-adding  employees.

We saw this in spades when we worked with a large credit union a while back. Following alignment, they didn’t just reduce staff, they cut an entire function and combined several more. And when we reviewed HR which had five staff members and planned to add one more, we discovered that three could do the job. Extrapolating that 50% reduction across several other bloated departments shows the labor-saving alignment can achieve.

But wait. Isn’t process supposed to align with technology?

Hardly. Instead of subordinating process to technology, companies that “do process right” mold technology support around process. They use technology to enable process, not lead it.

r   Surprising benefits

Redesigning work to achieve internal alignment must occur in proper sequence–first redesign process, then redesign technology support. When this occurs, companies realize surprising benefits. Not only can they shrink office staff further than they could using the “cost squeeze” approach, but there’s an unexpected benefit. The smaller office staff can provide more responsive customer service and increased customer attention. Why? Because proper alignment, with its focus on streamlining, reduces unnecessary “touches”–and even layers of supervision.

The first time we rolled out our Visual Workflow office process approach, a brave VP of a supervisory function stood up and said, “My function is redundant. We’re superfluous.” She resigned the following week.

T  The final step–aligning people to process

All well and good, but don’t put the tools away yet, because there’s one more key alignment companies must make to achieve the desired results–significant reduction in office staffing requirements, complemented by improved customer relations. Just because a company intelligently redesigns office process does not mean staff will just migrate to the new work approach because they’re told to. To cite the old HR saw, “People don’t mind change. They mind being changed.” And when you tell them to change, they resist.

So how do you overcome human nature?

Simple. Don’t tell them to change. Involve relevant staff in redesigning process right out of the blocks–ideally in cross functional teams, since so many office process defects lurk in the seams between functions. Involvement creates buy-in and ownership. And it greatly mitigates resistance to change. 

Also, implement change across multiple levels. Changing responsibilities and accountabilities on one level sets off a chain reaction. Management has to reset expectations to match up with redesigned work. And staff further along the work chain must be ready to receive new output. These aren’t just process issues, they’re people issues companies must address with training and support.

D Does the resulting staff reduction merit the effort?

Absolutely. On average, using People & Process Alignment techniques we’re able to create the potential to shrink office staff by 15%. In times like these, that’s huge. In past times, most clients have used the excess staffing to cover attrition or launch new initiatives without hiring. But during this recession, many companies will have to lay off instead. The good news is, and “good” is relative here,  by properly aligning strategy, people, process and technology companies can do more front and back office work and better work with fewer people. For some companies, that could mean survival.