Reducing People Costs - Energy Sector
Introduction
Our client was a primary supplier to energy producers. The demand for its products had changed, some decreasing and others are increasing. Costs needed to reduce in absolute terms for declining products to stay profitable and unit costs also needed to reduce for growth products gaining market share. The combination of a change in market demand and cost pressures required the company to alter the organisational shape and reduce the size of the staff.
An organisation design project was the obvious approach to deal with these challenges. However, previous projects of a similar nature had produced substandard outcomes. The Orgworks was chosen as we are organisation design specialists. Our approach to organisation design is rooted in understanding the best way for structure to flow from strategy (the 'macro-design'), combined with a deep, forensic examination of the organisation's current activities and future needs (the 'micro-design').
The client recognised that our subject matter expertise and our approach to engaging people would yield better results.
Choosing the macro-structure to suit the strategy
The process started by examining the strategic and situational context and how the organisation created value at an enterprise level. We examined how and where in the organisation work is coordinated and the extent to which control is centralised or decentralised. Then we mapped the workforce's current structure by layers, managerial spans of control and 'levels of work'. These factors and characteristics combined to suggest a broad 'macro-structure'. We then tested the suitability of the macro-structure and pinpointed ways in which it could be improved.
The chosen macro-model was then used to agree on appropriate design criteria. It was agreed to increase spans of control and, consequently, decrease organisational layers while still retaining capacity and capability for control and risk management (the company operated within a heavily regulated industry).
Designing the micro-structure to make it cost-effective
To inform the more detailed design of the micro-structure, we surveyed the workforce to identify how time is spent on business processes. The categorisation of business processes was developed iteratively with the senior team. We identified:
12 enterprise-level processes reflecting the value chain
39 functional activities
157 business processes.
The resultant data allowed us to quantify the totality of work done, and to analyse the structure and cost of business activities. We then proposed changes to the managerial structure and the deployment of the staff – the 'micro-structure'.
Our study highlighted too much time and effort being directed to non-value-adding activities. We used the data to establish a credible challenge to managers. We then educated and worked with the senior management team to redesign the organisation using sound organisation design principles and methodologies.
The outcomes of our work
This design achieved a 25% reduction of employees without putting at risk the operation's ability to satisfy customer demand. The shape of the organisation changed by
Stretching spans of control by 86%
Reducing managers by 60%
Thinning organisational layers by 40%
The benefits were in the region of £13m. By designing an organisation capable of raising revenues and reducing costs, the overall financial gains represented a benefit that was 14 times greater than the investment made in our consultancy services.
Client testimonial – Operations Director
‘There was a considerable decrease in customer demand, which had a disproportionate effect on our cost base. Our core product brings in most of our revenue, but it absorbs relatively few people. So, the whole business would need to respond to the change by removing cost from other departments.
I also thought there was an unevenness in how responsibility and accountability were distributed across our business. Some people would have no direct reports, while other managers at the same level could have 20 people reporting to them. It looked like the organisational structure had emerged in an ad hoc manner over time rather than reflecting a logical, deliberate design.
We used The Orgworks as they have a good reputation and are credible. They are specialists within the field of organisation design; consultancies tend to be general management consultants. Many consultancies offer organisational design support, but The Orgworks is the only firm I have come across where it’s essentially the only thing they do. With their deep specialism, they are more likely to guarantee a good process and a credible outcome.
Previous consultants used pre-set standard models and norms that they applied without fully understanding the business first. One consultancy used industry standards for spans and layers. Another consultancy relied on using comparators between sites. Neither of them was engaging; they were doing it to us, not with us.
The Orgworks brought my team into their process; that is a fundamental change from previous consultants. The management team were energised by the steps they worked through. They could see a route to finding a solution to our challenge, and they could see it was a different approach from the organisation design efforts of the past. From the work surveys to the interviews, they were involved in the whole project, right the way down to the challenge process and drawing up the design iterations.
The outcome was challenging and produced a thought-provoking future state organisation design that exceeded what we thought possible.
We have now solved the problem of supervisors not performing direct work. They now have a mix of simple management responsibilities and work within the team to get production completed. This is a significant change from what we have done historically – this is game-changing for us. It’s something I’ve wanted to do but didn’t have the data to justify the changes. The Orgworks provided the information needed to make the change.
Another thing that they made real was improving the shift support. The future state organisation structure amalgamated three departments and allowed us to reduce people while increasing shift managers. Twenty-four hours a day, there will be a manager of high standing available. It’s a win-win, with fewer people overall but better management, which will help to increase throughput. We’ll have the eyes and ears of someone responsible for the whole business always on hand, on-site. It’s great.
The final model that they produced reduced our staff by 25%, equating to £13 million, and we are confident that at least 80% of that can be realised within six months, which is massive for us.
Their process, personal credibility and gravitas made me confident that I chose the right people for this complex and sensitive project.’