My client was grinning ear to ear as he told me of a new opportunity

My client was grinning ear to ear as he told me of a new opportunity.  Rightfully so, it was a natural extension of what he was already doing.  While I was mentally weighing the costs and benefits of this opportunity, he declared “I need five more people!”  It took a few seconds for me to realize that he was planning a 9% increase in staff!

I managed to rein in his enthusiasm long enough to explore his “need” for five new people.  We found that the skills he needed already existed inside the company.  “But everyone is busy!” he cried.  Yes, but busy doing what?

Further investigation revealed that the employees possessing these skills spent significant amounts of time on work that had little value.  By shifting their time from low value work to this new opportunity, my client was able to accomplish his goal while adding only one new employee.  If we assume an average $30,000 pay and benefit package, the analysis we just performed saved my client $120,000 annually ($30,000 x 4 people).

Imagine this scenario being played again and again in Fortune 500 size companies.  Using the same assumptions (a $30,000 pay and benefit package and 9% overstaffing), a company employing 250,000 people experiences excess staffing costs of $675 million annually.  Is it any wonder that we hear about layoffs of 30,000 people or more in one company?  How does this happen?  There are four root causes for these inefficiencies.

Root causes

Unbridled enthusiasm – When the economy is strong or new opportunities present themselves, it’s easy to get caught in the euphoria of the moment and forget that every wave has a trough.

Mistaken belief 1 – Managers believe that their employees are spending their time doing meaningful work.   Experience has taught me that most employees are spending over 20% of their time performing tasks that have little or no value, even in seemingly well-run companies.

Mistaken belief 2 – Managers believe that it’s easier (quicker) to hire new people than to review employees’ workloads.  The reality is that the analysis my client and I did took less than 90 minutes; less than an hour and a half to save him $120,000 annually.  Not a bad ROI, is it?

Empire building – Many managers measure their value to the company by the number of people they have reporting to them.  Shouldn’t the inverse be true?  Shouldn’t managers who can accomplish more with fewer employees be more valuable than those who need a lot of people to get the job done?

The cost of bloat

The cost is much greater than the estimated $675 million of excess payroll costs listed above.  Organizational bloat prevents companies from establishing cash reserves to sustain them in difficult times or to take advantage of opportunities when investments are cheap, during a down economy.  There’s more!

The remedy for organizational bloat is the dreaded downsizing.  Expertise, experience, training dollars and morale lost to this “remedy” can easily double the excessive payroll costs listed above.  How do we avoid these costs?  It’s much easier than you think.

Avoiding bloat

The key to avoiding organizational bloat is to require all managers to subject their staffing requests to independent review.  The requests should be reviewed by a panel, preferably no more than 3 managers, who have a record of accomplishing a lot with few employees.  These panelists bring both an external perspective to the work and a natural tendency toward efficiency which will increase productivity and avoid bloat.

The panel’s review can be as simple as what my client and I did:

• Identify the skills needed

• Determine who possesses those skills

• With the employee’s help, identify and eliminate low value work

If you prefer greater sophistication, there are a myriad of tools available today – Process mapping, Activity-based Management, Benchmarking, Reengineering, Six Sigma, Lean Manufacturing, and Theory of Constraints.  Many large corporations employ one or more of these tools; unfortunately, it’s after their systems and people are in place.

Once the independent review system is in place, you’ll find that more and more managers will reevaluate their employees’ workloads before requesting additional staff.  Why?  Put yourself in the manager’s place.  How embarrassing would it be for you to have your request denied because a simple procedural change or elimination of low-value work negated the need for the staff you’re requesting?

Over time this self-evaluation, by managers and their staffs, will drive productivity gains and avoid organizational bloat.  Require managers’ staffing requests to go through an independent review before adding staff and you’ll increase profits without adding resources.

Copyright © 2008, Dale Furtwengler, all rights reserved

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