The Essential Organisation
Useful and Minimal
Reducing headcount is a sensitive topic. Nobody wants to do it, but sometimes business situations demand it. Perhaps a company has lost a significant customer and there is no sight of future work to fill the gap. Or there are circumstances where the company is making a loss and costs need to be reduced.
We use eight design principles when working with clients to redesign their company. We say that good organisation design is:
Useful
Minimal
Understandable
Detailed
Unobtrusive
Honest
Social
Long-lasting
This article concentrates on the first two – useful and minimal.
Using data for organisation design
Taking a data-based approach in cost-out situations is best, allowing the organisation design practitioner to make informed, dispassionate decisions. Baseline information should include cost, people and process data and must show the relationships between these data sets. Relevant good data allows problems to be better understood and better solutions to be found.
Many organisation design professionals stay away from using data to reduce headcount. These characters rely solely on engaging a company's employees to elicit their suggestions and ideas and then consolidate and regurgitate them (give me your watch, and I'll tell you the time). They are happy to address topics such as how to improve teamwork or how to reduce barriers between departments, but ask them to address the problematic matter of reducing headcount and they will run a mile.
When we work with clients to redesign their organisations, we often find it valuable to create a range of future organisational models and structures. One model we design is the 'essential' organisation.
An 'essential' design emphasises an organisation's and its members' usefulness while disregarding anything that could detract from it. It concentrates on the essential aspects and minimises the non-essential. After years of organic growth and organisational entropy, it is taking the organisation back to purity and simplicity. Less, but better.
An essential organisation brings people together to satisfy specific needs (useful) while consuming as few resources as possible (minimal).
Useful and minimal at a macro level
The starting point is to understand the organisation's requirements clearly and unambiguously. This includes its long-term ambitions, short-term challenges and current operating model.
All companies should have well articulated strategic aims, measurable goals and organisational outputs. They should also know exactly how each department contributes to achieving them. The best way to do this is to create remits for each department.
Purpose – why we are here
Responsibility – what we must do
Performance – how success is defined
Accountability – who answers for performance
The remits should be short, sharp and unambiguous. Bullet points are preferable over long-winded, nebulous statements. Here's an example of an operations department in a manufacturing firm:
Purpose – we manufacture fuel pumps
Responsibility – manage stock, manufacture components, assemble final products, test them and send them out
Performance – conformance to specification, cost and delivery time
Accountability – the operations director, manufacturing manager and logistics manager.
That’s it. Simple, no-nonsense and concise. Every department and team in the organisation should have a remit that clarifies its core purpose and how it is fulfilled. The individual remits can then be pieced together to create a mosaic macro view of the organisation.
Some challenging but straightforward questions can then be asked:
How does this department or team contribute to the company's goals?
What value does it create?
How much does it cost?
What processes should it be involved in, and which ones should it not?
How good is it at fulfilling its remit?
These are tough but revealing questions. We often find that 40% to 60% of effort and cost does not directly contribute to the company's goals. That means that some teams are not particularly useful or minimal.
Useful and minimal at a micro level
It has been observed in many real-world situations that a small percentage of the inputs produces most of the outputs. Most famously:
Vilfredo Pareto found that 80% of Italian property was owned by 20% of the population, later generalised by Joseph Juran as the ‘Pareto principle’
Derek Price found that 50% of scientific publications came from the square root of the number of published authors.
As uncomfortable as this may be to hear, it is nevertheless a universal truth that some employees are more useful than others and that a minority of the workforce often produces most of the value from a customer’s perspective. Let's remind ourselves that the essential organisation brings people together to satisfy specific needs (useful) while consuming as few resources as possible (minimal).
At the micro level, how do we find the elements of the organisation that are not useful or minimal? The answer is by conducting a thorough and detailed process analysis. The analysis must determine what employees do (the processes in which they are involved), the nature of their involvement and the proportion of time spent productively. This brings to light weaknesses within the company, such as duplication of effort, people working on processes they shouldn't be involved with, ineffective systems and low value for money.
The analysis also quantifies the ratio of direct, output-related activity (value-adding work) to indirect activity (support work) to ‘must do’ activity (regulatory work). Still think you can afford one HR business partner for every 50 employees? Or a huge accounts payable and receiveable team because you can’t be bothered to automate processes?
When the analysis is done in combination with an organisational structure analysis, activities and people that are neither useful nor minimal become visible, as do the reasons why.
A few closing words
The final piece of advice we offer is based on our own painful experience. Stick to the data, stay away from politics and remain neutral and dispassionate.