When organizations are looking to find cost savings, people costs are typically a significant portion of the budget and an attractive target for cost reduction, but beware! Reductions in staffing levels can destroy or erode organization capabilities or “muscle” that are at the heart of their competitive advantage and may have taken years to develop. When done haphazardly, staffing cuts can have a lasting impact on employee morale, trust, and engagement. When done correctly, the company can be left in a more competitive position and staff may actually be more energized over time. When making cuts, take the appropriate time necessary to make sound decisions. However, once decisions are made, execute quickly to limit disruption. Consider these five factors:
- Strategy and Organization Capabilities
- Operating Model
- Organization Shape
A helpful place to begin this thought process is with the customer. Getting clear on a few questions related to your customers can help shape the rest of the discussion:
- Why do your customer buy or partner with you?
- What is your brand promise to them?
- What differentiates you from your competition and what resources are needed to continue this?
Protecting key resources to serve customers is critical, but this may not mean serving them in the same way as before. Leveraging new technologies and being innovative with new service delivery models can allow for less people.
Strategy and Capabilities
Many organizations have a compelling, inspirational strategy that need to be supported with new organizational capabilities. However, these priorities are often inadequately resourced to execute against the strategy. This typical issue is exacerbated by cost saving inititatives. Instead of resourcing programs related to future opportunities, organizations often fall victim to maintaining legacy activities. When looking to find cost savings, look to where you are going and not where you have been.
Prior to honing in on individual business units, lines of business, or functions, a few questions can help clarify tradeoff decisions and ensure an enterprise view:
- How unique are the businesses?
- Where does it make sense to duplicate work in order to drive differentiation and agility?
- Where can resources and functional support be leveraged across business units, segments, or geographies to drive savings?
- What is the right level of integration?
Transformation at the business unit or functional level are limited in what they can deliver. Instead, take an enterprise lens that enables high-level tradeoffs between agility and leverage to drive real transformation.
Spans and layers exercises can be an effective tool to diagnose the shape of the organization and point to areas of ineffectiveness, but this should not supplant sound organization design practices. General guidelines such as large spans of control and fewer layers makes sense, but the way to get there should be dependent upon the optimal way to serve customers. Instead of conducting a spans and layers exercise that offers cost cutting targets, first get clear on the below questions:
- Is each layer from the CEO to the front line adding unique value?
- Are there layers of the organization that are duplicative in nature?
- Are there layers that are span breaker roles that have unneeded functional infrastructure supporting that layer?
- At what layer of the organization should we build functional infrastructure to provide decision support to leaders?
Looking at organizational layers strategically across the enterprise can improve functional support and drive significant savings.
Instead of blanket statements such as ‘keeping all high performers,’ viewing talent through a strategic lens can be a useful criteria to make objective tradeoff choices. Make staffing decisions based on the needs of today and tomorrow, not on yesterday’s needs. Two key watchouts related to talent:
- Tribal knowledge is very valuable and it can be an important element to company continuitity to keep the business running smoothly.
- For employees that are exiting, it is important that they are treated fairly during the process. Companies have an obligation to employees, and the manner in which these activities take place will have an impact on long-term success.
Even the best run companies are faced with right sizing due to market fluctions, technological advancements, demand shifts, and industry disrupters. The challenge is how to do it the right way.
Take the time to systematically consider impact on your customers, strategy execution, capability building, operating model, organization shape, and your talent.
Once you’ve made these key decisions, move fast. Long drawn out processes can limit your ability to respond to the market and wreck havoc on the morale and engagement of your people.
Start slow, finish fast.
Kates Kesler, part of Accenture