Not All Work is Equal
Differentiating and strategically balancing the effectiveness and efficiency of work activities can be difficult for many organizations -- often because leaders lack a framework with which to analyze the way various activities affect the value proposition to customers. Here are some best practices HR executives can use to help their organizations find efficiencies without jeopardizing strategic differentiation.
By Reed Deshler and Greg Brown
A difficult balance for any organization to achieve is the balance between effectiveness and efficiency.
Effectiveness is delivering the organization's strategy in a way that customers consistently choose to do business with you. Efficiency is delivering that strategy with as few resources as possible. Indeed, one of the great organizational challenges facing human resource executives is how to support their business leaders in designing organizations that deliver both a differentiated strategy and a low-cost operating model.
The starting point for effective -- and interestingly, efficient -- business design is understanding the organization's work. How each work activity is performed or how a series of work activities are configured creates differentiation that ultimately causes customers to choose one organization over another.
Much has been written about Southwest Airlines and its ability to compete against larger, mainstream carriers. All airlines provide a service by moving passengers from point A to point B. However, as 30-plus years of profitable financial results attest, Southwest has found a unique formula for providing this basic service in a way that has caused customers to choose them over other options.
The leaders of Southwest understand that the configuration of certain strategically relevant work activities make the difference in the way they deliver their value proposition to customers. They operate a low-price, low-cost strategy that hinges on high aircraft utilization. By getting one additional flight per day on average from their most expensive asset (airplanes), they are able to beat their competitors.
To drive high-aircraft utilization, Southwest has carefully designed an interconnected set of activities including highly productive ground crews, limited passenger service, exclusive use of Boeing 737 aircraft, flexible union rules and open passenger seating.
While competitors have tried to copy Southwest by offering some or all of these features and characteristics, they have almost universally missed the mark because they have not copied the entire configuration of activities.
How did the leaders of Southwest begin the process of designing their world-class operating model? They understood a key principle of organization design: "All work is not equal from a strategic perspective."
Some activities are more closely related to driving an organization's strategy than are other activities. Therein lies the secret to designing an organization -- any organization -- for both effectiveness and efficiency.
Strategic vs. Non-strategic Work
While this concept seems simple, why have leaders not incorporated this principle into their thinking and into the design of their organizations? One reason is that they lack a framework with which to analyze their organization's work activities.
Once an organization's point of differentiation is understood (e.g., best relationships, most innovative products, lowest cost, fastest turnaround, or easiest-to-use technology),
this framework
can offer a lens with which to examine work activities in a new, strategic light.
As the framework suggests, every organization performs activities that are necessary, but alas non-strategic. The key is to design these necessary, non-strategic activities in a way that drives the highest level of efficiency. Some principles that may be considered include:
* Examine alternative sourcing options (e.g., offshoring, automation, self-service, etc.);
* Co-locate or share work to take advantage of standardization and resource pooling;
* Prioritize investments and resource deployment based on the strategic relevance of activities; and
* Focus cost-improvement and cost-reduction initiatives on necessary but non-strategic activities.
Another example of how this thinking has played out is in the automotive industry.
In the early years of Ford Motor Co., its strategy was to build an affordable automobile for the average person. To accomplish this, Ford controlled all of the activities involved in designing, making and distributing cars.
As the auto industry evolved, Ford, along with its competitors, chose to focus on the activities that would bring the greatest competitive and strategic return. Thus, Ford now focuses on designing, assembling and financing cars, and has chosen to source hundreds of activities they once controlled and managed, to parts and components suppliers.
With the recent economic crisis, Ford and its peers will each need to re-examine their strategies for ways to differentiate themselves in the minds of customers, and then redesign their massive organizations to emphasize the activities that will lead to differentiation.
Just like the automotive industry, many industries and companies are recently focusing less on growth and more on survival. Understanding the impact of work on strategy can be as beneficial in a cost-cutting environment as it is in a growth environment.
This understanding allows leaders to use a scalpel, rather than an axe, when resizing or repositioning their businesses.
When staffing adjustments are necessary, most organizations intend to "right-size" or strategically redeploy resources. But, too often, the mandate is to "cut all departments and areas by 15 percent." While the net effect of the cuts might need to be 15 percent for the business, the real question that should be asked is, "Should we be cutting our strategic work activities?"
If the answer is "no" -- which it probably should be -- then cost-cutting efforts should fall disproportionately to the areas that perform the necessary but non-strategic work of the organization.
Even though this approach might not seem as fair or equitable as asking everyone to share in the pain of cutting 15 percent, it is the right approach to win against competitors. Successful organizations can't afford to cut the muscle that will help increase revenues, capture market share and generate new growth opportunities.
Best Practices of HR Executives
Having provided a technique for categorizing the work of an organization along strategic lines, let's now turn more specifically to the best practices HR executives can use in helping their organizations and the leaders they support find efficiencies without jeopardizing strategic differentiation.
Experience and evidence suggest that HR executives make a strategic contribution when they help company leaders fulfill the vital role of organization architect. Many business leaders have attained senior positions without fully appreciating that, in addition to driving operational results and setting strategy, they have an equally, if not more important role, in architecting (designing) their organization.
Just saying that an organization wants to be the leader in product innovation doesn't make it so; a product leadership organization such as Apple has to be thoughtfully designed and implemented.
Often business leaders lack the vision for what is involved in designing the organization, so HR executives need to step forward and facilitate organization architecture discussions. In one B2B-Internet business we worked with, the senior HR officer was able to guide leaders to define their point of differentiation and then align work activities using the framework above. The result was remarkable -- more than 80 percent market share within five years.
Another area where HR executives should exert their influence is in making sure that performance metrics, pay and incentives, and leadership development are aligned with the organization's strategic work.
The design of performance plans and pay/incentive structures must drive effective delivery of strategic work, while encouraging continuous improvement and cost cutting in necessary work activities.
Best-in-class organizations not only provide leadership development opportunities for top talent, but also ensure those programs reinforce the strategic capabilities of the organization.
For example, if an organization's point of differentiation is "best relationships with consumers," then HR ensures that performance metrics, pay and incentives, and leadership programs all drive behaviors, organization choices and investments that will enhance the organization's strategy. This might even mean that building or partnering is preferable to buying off the shelf when sourcing services for these key HR systems/programs.
HR executives play a key role in defining the requirements of leadership positions. The requirements for leaders in strategic work areas include understanding marketplace dynamics, designing differentiated programs/products/services, enhancing channel influence and building the brand promise.
On the other hand, the requirements for leaders in non-strategic work areas include designing and executing high-volume, high-quality transaction processes, measuring performance and variances, driving process improvement and finding ways to streamline delivery and execution at lower cost levels.
All leaders must have core leadership capabilities, but HR can ensure that leaders' strengths and capabilities are matched to the requirements of the type of work they direct in the organization -- strategic vs. non-strategic work.
Even in good times, HR executives should be pushing the leaders of non-strategic work to examine ways to cut costs. This can be accomplished through process improvements, alternative sourcing and automation/digitization.
HR is not necessarily the expert in designing and implementing these efficiency strategies, but they should be pushing the organization and its leaders to consider these options.
In tough economic times, savings gained from non-strategic work can be recovered to improve financial results and provide much-needed working capital. In good times, savings can be reinvested in strategic work activities that will further build the organization's point(s) of differentiation.
This graphic
highlights how HR's focus on the non-strategic work can enhance the performance and financial flexibility of the organization.
Another best practice of HR executives is to be vigilant in challenging the formation of redundant or duplicate organizations (often referred to as "shadow organizations").
Because necessary work activities such as IT are shared across the entire organization for efficiency reasons, HR should make sure that individual business units aren't allowed to recreate IT capabilities within their business.
Business leaders have been known to creatively find ways to hire project managers or business analysts (or other positions with nondescript titles) and, in essence, duplicate capabilities the organization has already funded.
Where shadow organizations exist, HR should work to uncover the root cause of why the shadow organization has emerged. Sometimes that shadow organization exists because the primary, sanctioned organization is not delivering as promised. That situation needs to be addressed in some way other than recreating capabilities somewhere else in the organization.
On the other hand, if some strategic capability (strategic work) is being pinched by a shared, non-strategic activity, then perhaps a justification exists for allowing duplicate capabilities to be built and housed in the business unit.
Whatever the case, not only are HR leaders in an ideal position to identify and arbitrate these trade-offs, but they also have the skills to facilitate designing the best solution.
In practice, HR leaders face an uphill road in executing these best practices.
In some executive circles, the HR function lacks the credibility to act strategically. This lack of credibility can be caused by HR leaders who are not intimate with the business -- and instead of assisting with the real strategic and day-to-day challenges operational leaders face, they have a propensity to push "ivory tower" HR programs.
A lack of HR credibility can also stem from business leaders who don't understand the strategic role HR can and should play; thus, leaders do not give HR a chance to step up to the table to make a strategic contribution.
Even in organizations where executives, understand and appreciate the strategic role of HR, the HR function often shoots itself in the foot by failing to deliver on basic services, e.g., payroll, employee relations, open enrollment, etc.
Whatever the cause, HR executives must work to establish credibility -- both personally with other leaders and on behalf of the entire HR function.
The second major barrier HR executives face in leading strategic-design discussions is that they lack a robust tool set.
Just as marketing professionals have a tool kit and finance managers have skills in their respective trades, HR executives should have organization-design tools. They may employ HR specialists or engage external experts in organization design, but to facilitate the organization-design discussion at the strategic table of the business, HR executives must be able to apply tools and methods to solve real business issues and problems.
Just having been around a while and having lived through several restructuring is not enough. HR executives and their teams need to seek specific training in the language, tools and methods of organization design. Interestingly, this not only improves HR's credibility but also allows them to bring real value to the table.
While this is not an exhaustive discussion of ways to drive effectiveness and efficiency simultaneously in organizations, it does offer a powerful and proven framework for doing so and hints for how HR executives can play a leadership role.
Our experience suggests that regardless of the industry (e.g., manufacturing, financial services, retail, technology, media, etc.), real results can be achieved. One global rental business realized more than $22 million in savings using this framework.
A global manufacturing business in a well-known multinational found more than $2 million in savings, even after having been through two previous cost-cutting cycles within the previous year. And several organizations have achieved what one $8-billion energy-services provider did -- 10 percent organic growth year-over-year with 20 percent cost savings.
Because it is impossible to resource everything (especially in today's tough economy), HR leaders should be engaging the business leaders they support in meaningful discussions about ways to size, align and design their organizations for both differentiation -- effectiveness -- and efficiency.
Reed Deshler
is a seasoned organization design and change management practitioner who has helped many organizations design their businesses and support functions for growth and efficiency. Prior to joining AlignOrg Solutions, Reed held internal management and HR positions in both organization design and customer service operations for Humana, a national health insurance firm and Farmland Industries, a member-owned cooperative. He can be reached at 502-241-0057
Gregory W. Brown
is a seasoned human resource executive with more than 30 years of manufacturing and corporate experience primarily in the automotive industry. Throughout his career, Greg has been responsible for providing innovative solutions in leadership and employee development, executive coaching, strategic planning, talent acquisition, employee and labor relations, as well as ethical business standards compliance and organizational design. He can be reached at 248-652-8070.
July 1, 2009 Copyright 2009© LRP Publications
|
Print
Email
Write to the Editor
Reprints
