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When corporate profits dropped by a third during the height of the economic downturn, companies were forced to eliminate products and services, streamline operations, and cut overall costs. The result of these painful, but necessary, decisions is that many organizations have become quite good at delivering their core products and services with fewer resources, essentially adopting a "doing-more-with-less" operating style.
It is difficult to argue with the results. Second-quarter profits for industrial companies in the Standard & Poor's 500 stock index (including Apple, Boeing and Caterpillar) were $189 billion, up 38 percent from a year earlier. These spectacular profits did not come from revenue growth exclusively but in many cases from the cost savings realized from reduced workforces. Moreover, this trend shows no signs of abating. For many companies, doing more with less is the new economic reality.
Problems of Doing More with Less
While the short-term benefits are obvious, the long-term implications of this new way of working are not as apparent. Of course, companies understand that they cannot continue cost-cutting their way to prosperity, but this is exactly the tactic most have taken over the past two years because of a lack of other options for driving financial performance.
In addition, the speed with which the economic climate shifted in the fall of 2008 forced companies to slash costs and staff quickly without considering the long-term impact they might be inflicting on their organizations' overall capability, organizational structure, business processes and levels of workforce engagement. Among the problems emerging are:
Not being properly staffed can directly influence a company's cost structure, cash flow and ability to deliver goods and/or services. Agile organizations have the ability to deploy people rapidly to address shifting business needs. With resources cut to the bone, however, most organizations' existing staff are able to focus only on their immediate responsibilities, leaving little time, energy and desire to work outside their current job scope. Ultimately, diminished capacity and lagging response times will affect an organization's ability to remain competitive.
Misaligned Organizational Structure
Rapid reorganization of business units, divisions or functions has led to organizational structures that are ineffective and no longer aligned properly to support the business. Many of these reorganizations produced structural gaps in roles, work processes, accountabilities and critical information flows.
One example is a well-known technology company that cut its product service organization. Because of the increased workload, critical communications broke down pertaining to securing the necessary approvals for international distribution. This resulted in foreign and U.S. government penalties that could have been avoided.
In addition, structural gaps can occur when companies eliminate middle management levels without eliminating the work, forcing employees to take on additional responsibilities. This creates capacity issues for two reasons: Lower-level employees who step in often are ill-equipped to perform the required duties, and higher-level executives who must take on more-tactical responsibilities minimize the value of their leadership skills.
Broken Business Processes
Many organizations will admit that, even prior to the economic downturn, many core business processes were not documented, were not supported by technology and relied too heavily on the "tribal knowledge" of long-term employees. These broken processes problems have been heightened by the realities of doing more with less.
Unfortunately, many businesses have not analyzed the impact from their cuts and the corresponding critical gaps that have developed. By failing to address these issues in a timely manner, companies risk losing core efficiencies, thus damaging the customer experience—a primary driver of revenue sustainability.
Declining Workforce Engagement
While doing more with less can improve productivity, it can also damage employee morale. More workers are juggling additional responsibilities, working longer hours, missing family time, and performing jobs that are one or two levels above or below their pay grade. With unemployment high and few companies hiring, most workers are "hunkering down" until the job market improves. (See sidebar, "Turnover Intentions Decline.")
Turnover Intentions Decline
Sibson Consulting's most recent Rewards of Work Study, conducted in 2009, found a drop in the percentage of employees intending to leave their organization in the short term—14 percent, down from 16 percent in 2006. This marks a departure from the previous three studies, which were conducted during very different economic conditions and in which turnover intentions were unchanged.
Designing an Agile Organization
Organizations should address the inadvertent costs and complexity issues generated by doing more with less. This new mode of operation challenges fundamental assumptions about the resources required to sustain performance. It disrupts a company's state of organizational alignment and creates a need to examine its structure, its core business processes and the level of workforce engagement required to execute desired business objectives.
To ensure long-term viability, organizations must realign these critical elements to fit the new economic realities without diminishing their core capabilities and competitive differentiation.
Organizational realignment involves closing the structural gaps that are impeding the company's desired level of performance. Designing a flexible organization that can adapt to changing business conditions requires:
Break Out of the Org Chart
Under pressure to take swift and decisive action, many organizations overlooked or paid cursory attention to five key areas (see table below) during the economic downturn, only to have one or more of them cause significant problems later. Building an agile organization requires thinking beyond reporting relationships, layers, spans of control and numbers of people. Achieving alignment and incorporating the necessary business assumptions to ensure that organizational capacity is sustained requires much time and critical thinking upfront.
Organizations in need of realignment must decide what outcomes the new structure or process is intended to produce. This typically requires recalibrating:
Realign Core Business Processes
Realigning an organization's core business processes involves thoughtful consideration of how the supporting infrastructure will need to adapt continually to sustain performance while maintaining or reducing costs. While process realignment builds on the earlier high-level recalibration work at the structural level, it goes deeper by documenting the sequences of input, output and transitions of critical tasks, which drive the enterprise.
Typically, best-practice organizations consider five key elements when recalibrating their core processes.
Five Key Elements in Recalibrating Core Business Processes
The critical tasks and activities required to build a product and/or deliver services and business processes to execute the work.
Roles and Accountabilities
The support, roles and accountabilities required to execute the core work processes.
Who makes the decisions and under what conditions regarding how the work is done.
Key Interfaces and Communications
The type and flow of information necessary to do the work and ensure efficient collaboration within/among work units, functions or other stakeholders.
Quantitative measures of the results the organization is committed to delivering as well as the metrics required to monitor and manage progress against the intended results.
Source: Sibson Consulting.
Only by continually realigning these core elements of business processes can an enterprise sustain operational excellence and increase productivity. This is especially the case in a doing-more-with-less environment.
Focus on the Organization's Talent
When operating budgets only allow for bare-bones staff, companies must be extraordinarily adept at engaging and retaining a high level of talent to sustain high performance. While there are many ways to accomplish this, Sibson proposes the following three strategies:
Identify the company's current employment value proposition (EVP). This requires an objective analysis of what the organization expects from its employees in terms of performance and commitment and what it provides them in exchange for their contributions. If an organization expects a lot but returns little, a significant gap will result in the EVP, leading to churn.
In addition, if an organization expects little in the way of performance but provides significant rewards, a culture of entitlement will develop. Understanding how doing more with less has altered an organization's EVP will make it possible to better align the employer's and employees' expectations and to make significant improvements that will increase the engagement and retention of critical top performers.
Realign rewards. Forward-looking companies segment their job roles by the value they create or add. They identify the roles that are essential to achieving the organization's business objectives. By taking this targeted view, companies differentiate and develop total rewards programs that align with the needs, expectations and desires of their top performers.
Implementing this approach requires identifying those critical roles and then conducting research to understand what needs to change to match the current EVP with the ideal EVP. It requires differentiating rewards based on the value those roles bring to the enterprise.
If this process is undertaken properly, it will result in employees in pivotal roles who are motivated and eager to put forth more effort in a resource-constrained environment.
Communicate globally but translate locally. Organizations doing more with less cannot afford to have even a small percentage of their employees disengaged. Although effective communication is one of the most powerful weapons to fight disengagement, enterprisewide e-mails, town hall meetings and conference calls are not enough to generate enthusiasm among overworked employees.
For global or enterprisewide communication to be effective and influence the rank and file, it must be translated and debated by local managers who are the critical linchpins between leadership and front-line staff. Organizations looking for performance sustainability and productivity from staff that are consistently doing more with less would be wise to formalize the role of managers in distributing communications that shape the perceptions of their teams.
Regulate the Addition of New Work Tasks
As companies adjust to the realities of doing more with less, they must guard against work creep. It is not uncommon for managers to start initiatives, make more requests and hold more meetings once economic pressures subside. Therefore, processes that continually examine the true value of additional work must be implemented and rigorously followed.
In Sibson's view, five critical questions need to be asked:
Unless these questions are addressed properly upfront, the productivity improvements gained through doing more with less will begin to evaporate, employees will burn out or turnover will start to rise.
The costs and complexity of doing more with less are real. So is the fact that this mode of doing business is likely here to stay. The question for most companies essentially becomes how to operate within this context to drive performance, regardless of changing and unpredictable business conditions.
Organizations must address the indirect costs and complexity issues that impede sustainable performance by creating alignment up and down the organization. Much like a car, which needs to have its tires rebalanced and realigned periodically to ensure optimal performance and minimize wear, today's organizations should realign their organizational structure, their support for their core business processes and the level of workforce engagement required to achieve results in a challenging environment.
E. Michael Norman is senior vice president in the Los Angeles office and a leader in the Performance and Rewards Practice of Sibson Consulting. He can be reached at (310) 231-1754 or email@example.com.
J.P. Elliott, Ph.D., is a senior consultant in the Los Angeles office of Sibson Consulting. He has significant experience leading strategic human resource initiatives that drive enhanced and sustained business results, including talent management, strategic workforce planning, organizational design and change management. He can be reached at (310) 231-1756 or firstname.lastname@example.org.
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