Very interesting topic of discussion @ the ergo blog. Read Col’s post before reading my response below.
I remember hearing Marcus Blackmore (chairman and founder of Blackmores) speak at a CSR conference I attended last year about his attitude towards ‘soft’ assets and their associated upkeep. His point of view was that each staff member of Blackmores was to be ‘valued’ at 50k…on top of their salary. His figuring here was:
– that to fully and properly replace a member of staff might cost about 1-2k in recruitment costs (more if you use a talent agency, which can charge upto 20% commission on the first year of salary of new hires)
– That when the new person hit deck, they would take time to get fully up to speed with the operation and flow of the business. This time, he conservatively reckoned, could be anywhere up-to 4 months.
– That when an ‘old hand’ leaves, often they have been filling many different roles and functions, which need to be covered at a cost to the organisation. At World Vision recently we have had one of our team, Bev, leave to further grow her own spiritual well-being business (which is booming, by the way). To replace Bev, we have had to distribute her role to no less than 4 different functions around the business.
All up, I actually think his 50K figure sounds quite conservative!!!
Then, in what I now take to be a great example of LAS, he used that assumption to justify the building of a new office and manufacturing space, with a total bill of 50k x the number of staff at Blackmores. (Blackmores, I think, has about 300-500 staff. I’m not sure exactly.)
His feelings were that if Blackmores could create an environment where his staff would want to be, and where they would feel happy and energised working, he could bring down the cost of losing his great people, and the cost associated with capturing the most talented in his industry. For memory, under his assumptions, the great outlay involved in building such an environment was completely rational under the old ideas of the traditional business paradigm – even profitable. And that’s not mention the associated productivity gains generated from such an environment and the savings from being more vertically integrated (office and manufacturing in one place.)
A great topic of discussion, that’s for sure. What are your thoughts?
The Squiggly Line 
Haven’t been able to read Col’s comments but the issues you raise here Steve remind me why organisation restructues do not deliver their budgeted savings. While these restructures look at processes, department activities, document flows and all other analytical tools they tend to take place at a macro level. They dont drill down to what an individual is doing and their real contribution is. There is not enough time or money available for this. The owners want cost savings and are acting on anecdotal evidence that certain areas are the cause. Soon after these studies are completed and the significant pain to the organisation starts through the retrenchment process, which is very emotional of course and affects morale badly, (and your best performers may use this as an opportunity to look around for other jobs) and the addition the significant financial cost through retrenchment payouts, other people have to be employed to cover the activities retrenched staff were doing but not formally recognised or existing staff have to take on new tasks, taking them away from what they suposedly were employed for originally. I have gone through two major restructures. The first l survived, the second l didn’t so have first hand knowledge of what went on. Even the best analysis did not take in account the intangibles that people brought to the organisation. It must be said that by its very definition intangible “assets” are hard to define. As an accountant my own profession has wrestled with valuing items like logo’s, company names, brand values etc to include in financial reports like a Balance Sheet. How much do you think the masthead of The Age is worth for instance? The name Coca Cola or its abbreviation Coke? They have a value but how much? Accountant dont want to artificially inflate a company’s value. With these problems how hard to you think it it to value individual human intangibles? Suffice to say that those who can get somewhere close to their value will have a large operational advantage that will transfer to the bottom line. Its just you wont really see how it happened.
Doug, completely agree with your comments. I think restructures can be a good thing, but not in the guise of ‘cost cutting.’ I tend to agree that such reductions simply move the costs to somewhere else within the organisation. Restructuring may be useful from a talent refreshment angle, turning over bums on seats that perhaps we’re in need of change? Not sure about this, keen for your thoughts.
Steve, from my experience only large organisations have the ability to rotate staff within similar sections. Finance is a classic example of a department that can do this. At a lower level people can move through accounts payable, accounts receivable, sales processing, fixed assets etc. At a higher level qualified accountants move between supervisory/management positions and financial analyst roles in Finance , Tax, Audit etc. But only the bigger organsations can do this and the “restructuring” takes place through promotions that occur, not necessarily through a deliberate rotation basis though this happens in my department at DHS. In small organisations management just cant offer the flexibility. People tend to have to leave to upgrade their role or find other related work interests. Refreshment though is good for all organisations and in this area not just people from within the organisation. Bring in new people from outside the organisation though this tends to only happen if they cant find a relevant person internally. Advertising the job externally as well as internally could help here.
Its an area that is difficult to control. Management want stability if the information coming to them is good. Yet they also need to keep their staff motivated and provide opportunities for them to prepare them for other jobs along the way. The bigger organisations can do some succession planning. Smaller firms are flying by the seat of their pants in this regard. The Age and Seek are full of job ads for these firms. You dont see many ads for jobs at Mobil/Shell/BHP/Coles etc.