Four Groups

Archive for September, 2011

If engagement was the buzzword amongst OD and HR professionals last year, the current word du jour seems to be complexity.

HR Magazine recently (here) featured research carried out by Simon Collinson at Warwick University and consultancy Simplicity Partnership that came to the conclusion that the world’s largest 200 companies are foregoing on average £735m ($1.2bn) of profit annually, because they have over time engineered far too much complexity into their organisational structures.

Whilst I am not sure how this figure was arrived at, this makes a certain amount of intuitive sense, especially as history has shown us that as organisations grow, individual productivity tends to fall. As we are dealing with the largest companies, it stands to reason that a huge amount of time and effort is wasted on inefficient and superfluous activities.

Indeed it is not just time and productivity that is lost within the convoluted and complex structures in the largest companies. Over-complex organisational structure also discourages innovation as Steven Johnson discussed in his recent book Where Good Ideas Come From (here), arguing that a more organic approach to organisational structure such as that found in cities can lead to greater innovation.

The authors of the report state that the current situation is down to employees over-engineering systems and processes, incrementally adding steps or actions that in reality add little to the business and reduce the amount of time people can devote to more productive activities. Over time this has a huge cumulative effect on performance. They go on to conclude that in order to increase productivity and profits, it is necessary for organisations to simplify their structures and strategies, paring them back to more easily manageable levels that actually encourage greater output rather than hindering it.

Without doubt this approach could help free up considerable management and employee time that could be devoted to more productive activities. However, personally, I think that this approach does not necessarily lead to a long-term solution to this problem. Without significant changes in how we think and approach organisational design, strategy and culture, it is inevitable that despite the best efforts to simplify and control systems and processes, over time they will revert back to an inefficient state.

Interestingly, the article is entitled; “$1.2 billion each: The hidden cost of people complexity to the top 200”, note the emphasis on the word people. From my perspective the real root of these problems are down to behaviour. This problem is as much about relationships, behaviour and culture as it is systems and processes.

The complex and inefficient systems that riddle our largest organisations stem from the very human desire to simplify, unify and control naturally complex issues. Our innate desire to manage and understand the environment around us leads us to try and measure information in the most basic and simple terms. How else do you explain the cult of metrics in the business? The great mistake is that in the real world and particularly for large systems such as multinational organisations we cannot fully understand the huge amount of variables and cause and effect relationships that permeate throughout the system, instead we have a rudimentary set of measurements that although designed to reduce uncertainty, we can never be sure that are telling us what we think they are or leading to

Secondly, it can be argued that the system actually encourages inefficient behaviour. As managers work their way up the corporate ladder, in many cases they are rewarded for the inefficient behaviour that perpetuates the bureaucratic and inefficient. For instance, activities such as standardisation, predictability and reducing variability are all actively encouraged ye Such rewards and positive feedback become lodged in our minds that any change in this outlook becomes hard to achieve. For instance getting managers to actively look to cede or give up control rather than seek more of it is a necessary step if organisations are going to benefit from increased efficiency, yet this is much easier said than done.

To solve the problem of complexity we need to understand that the methods that have traditionally been used to construct and organise businesses are inherently inefficient and in many cases stifle growth and inefficiency. Unfortunately for organisations the long-term solution requires a re-engineering of attitudes and behaviour.

Over at MiX, (here), Luc Galoppin posted an excellent blog that succinctly summarises some of the inherent problems and contradictions present in most HR departments. These can be summarised by HR’s ongoing desire for a seat at the top table and to be seen as a key driver of organisational strategy and change that have been top of the HR agenda since the publication of Dave Ulrich’s 1997 book Human Resource Champions (here).

One of Galoppin’s key assertions is that rather than an agent for change, which many HRD’s like to see themselves as (being able to design, implement and promote organisational change programs). HR is in fact naturally much better placed to act as a stabilising force within the business, as he states an agent of continuity during periods of change. Galoppin states:

“In short, HR does not posses the skills that are required to manage change initiatives. Instead, HR’s strength is that of a ‘Continuity Agent’, a stabilizer if you will.”

This makes sense when one considers HR’s traditional strengths such as developing systems and outlining processes and best practice. On the other hand, to be an active proponent and driver of change requires a much more disruptive and experimental approach, not natural attributes one would think of when describing most HR professionals.

The Ulrichian logic that the best way for HR to increase its influence is by being at the heart of decision-making and having greater influence over strategy and decision-making is according to Galoppin the wrong way for HR to think about its position within the business.

All is not lost however and Galoppin charts a three-step process that could help improve matters. By focusing on developing credibility and embedding HR within the business rather than an independent support function, things can change:

“The third step for HR is empowering the business by outsourcing the core part of their activities … to the business. Whereas step 1 may include the outsourcing of administrative tasks to a shared service center, this step will require a handover of activities to the business. That way, HR processes get managed where they live and exist: on the shop floor among the people.

Only by abdicating power and embedding HR practice directly within the business can HR prove its value. For many HR professionals still committed to the idea of a seat at the top table, this is unlikely to go down well. Many HRDs argue that to be influential they need to have control over all these people issues, when in actual fact the opposite is true. For HR to be seen to add real value to the organisation, the HR department needs to devolve as much control as possible.

It is however important to emphasise that the current predicament is not solely down to the inability of HR departments to demonstrate value. In many cases senior executives are guilty of failing to appreciate the complexity and importance of human behaviour, relationships and collaboration when it comes to organisational performance. As Galoppin puts it:

“The attitude in most projects is exemplified by this statement: “We’ll take care of the process re-engineering and the technical stuff; HR will do the soft stuff.””

The compartmentalising of the “soft stuff” is a very damaging attitude to have and highlights why many change projects are doomed to failure from the start. What many senior executives fail to appreciate is that it is actually the intangible people-side of things that is the hardest and most complex element of any change program that cannot be effectively sub-contracted to HR. In fact it can be argued that people-based issues represent the greatest risk to the success of any project. For this mindset to change, arguably it is going to require more than HR to prove its value, instead it will require senior executives to prioritise the naturally intangible, woolly and complex issues that surround the behavioural aspects of change.