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(originally published by Booz & Company)


Profiles in Organizational DNA Research and Remedies

Shining the Light on Shadow Staff. Regardless of the industry, shadow staffs lurk in the corners of most large enterprises. Once brought to light, these positions can add another 30% to 80% to total support-staff headcount. To improve operational efficiency over the long run, an organization needs to understand the reason shadow staffs exist. The organization must then eliminate that reason, but not necessarily the position. That is the surest way to eliminate duplicative and wasted effort for good.

Management Spans and Layers. If you look closely at the management ranks of many Fortune 500 corporations, all too often you will see the hourglass organization: excessive layers and narrow spans of control, particularly among mid-level directors and managers. The result is often bureaucratic buildup, bottle-necked decisionmaking, and a general lack of innovation. Organizations like these need to look beyond simple headcount reductions to find more lasting and effective methods for getting in shape.

Attacking Overhead Costs from Both Sides. Standout companies are now stepping back and adopting a new and broader perspective on the age-old cost reduction problem, one that encompasses not only traditional supply-side cost restructuring (e.g., business process reengineering (BPR), shared services, ERP, strategic outsourcing), but also demand-side optimization strategies. Approaching the cost reduction challenge from both sides has unlocked major benefits and savings for such companies.

Optimizing Internal Demand. As in the past, companies today are looking to internal services first to pare expenses. What is different is the lens they are applying; the perspective has broadened. Instead of relying solely on supply-side tactics to cut costs (e.g., BPR, automation, outsourcing, offshoring), companies are now managing the demand for internal services as well, challenging service providers and business unit customers to make serious affordability and service-level tradeoffs.

Driving Demand Management for Internal Services. The search for step-change cost reduction sets up a natural contest between line and service organizations. Business units complain that they bear the brunt of the belt-tightening and point to support services as a drain on their resources. Support functions point to benchmark studies that show they are performing at best-in-class levels and have already squeezed out potential cost savings. Can they both be right? In a word, yes.

The New CFO Agenda. According to a benchmark survey conducted by Booz Allen Hamilton, best-in-class companies are increasingly recognizing corporate officers’ roles in setting strategic direction, allocating resources, and serving as an “early warning system.” Particularly visible is the chief financial officer (CFO). More than a control agent or scorekeeper, the CFO has become an internal investment banker and the custodian of value-based performance management.

The View From the Top. Historically, many firms have relied on culture to manage the executive dialogue. As companies globalize, expand through acquisition, and diversify their operations, however, their ability to rely on tradition and shared experience diminishes. In the absence of “culture,” companies need to put in place more formal and engineered management systems, processes, and roles to keep diverse operations running smoothly and on the right path.

A New Take on Business Process Redesign. Product-focused organizations are becoming more customer-centric and learning that their current processes cannot deliver on new market requirements. Thus, once again, companies are reevaluating and redesigning their business processes—customer- and noncustomer-facing—in search of increased customer value, and internal efficiency. This new round of BPR (1) differentiates processes based on customer profitability and cost to serve; (2) occurs within the context of an overall organizational change; and (3) is built on sustainable behavior change.

Business Process Outsourcing & Offshoring. Having exploited most of the first-generation cost savings available through outsourcing, leading companies are now focusing on business model transformation. They are looking beyond IT and general and administrative (G&A) services and outsourcing processes closer to the core, including line operations, often using offshore resources. Moreover, many are exploring ways to commercialize their own world-class internal services through spin-offs and joint ventures.

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