Cost Management

Employees waste a lot of effort working around systemic flaws that get buried. Brian Plowman explains how to expose them and solve them.

It’s difficult to take out costs from your organisation if its resources are already stretched. Such constraints make it important to target where changes to business processes will give the best possible return. It’s crucial not to waste precious time and effort on making changes where few benefits can be realised or where an inappropriate cut could damage the core business.

My firm’s detailed study of the work done by employees in more than 300 organisations recently made a staggering finding: no organisation ever documents more than half of its routine activities. Most respondents had put in place written job descriptions and procedures, but there was a big discrepancy between the tasks these listed and what people actually did. The reality is that staff are constantly handling unforeseen variations to their formal duties. The tasks they perform in order to adapt to these variations are undocumented. Within a short time the invisible but routine “interfacing activities” – so called because they link the tasks carried out by individuals and teams – outnumber the documented interfacing activities.

This means that in any organisation about half of the processes are designed spontaneously by employees to work around the problems they face. You might well think that this situation would be noticed quickly and solved. Unfortunately, this isn’t the case.

Take, for instance, one employee at a hospital who was responsible for issuing a particular piece of equipment. His anticipated interfacing activities included receiving a requisition and then locating and distributing the equipment. His unanticipated interfacing activities included having to compensate for the fact that the item, despite being shown on the computer as “in stock”, was clearly elsewhere. After phoning the person who’d ordered it and establishing that an alternative would not suffice, his quick fix was to scour the many places where the equipment might be. Asking the stores manager to improve the tracking system elicited an all too common answer: that his team would get on to it as soon as it could. This practice, with all the extra work it entailed, became the routine.

In another case, a sales manager at a supplier of ready meals raised a production order to fulfil a special promotion for a supermarket chain. His anticipated interfacing activities included placing orders with suppliers for all packaging and ingredients, and giving his manufacturing team a schedule for the project. His unanticipated interfacing activities included chasing up extra materials for another production run at short notice to meet a shortfall at the end of the promotion period. This panic order reinforced the view among factory managers that the sales team didn’t fully grasp the impact of promotions on the firm’s processes and costs, which was why every promotion had lost money. Their request to the sales manager to sell promotions as a fixed quantity of meals rather than for a set period elicited the old chestnut that he would get on to it as soon as he could. Of course, the usual wasteful practice stayed in place and became the norm.

We found similar cases among our research sample time and time again – no sector or industry was immune.

The invisibility of these interfacing activities and the lack of understanding that surrounds them is always costly. Such situations reduce employees’ job satisfaction and the level of customer service provided. Since interfacing activities usually account for half of the work they routinely do, employees feel the impact on their productivity keenly. For one thing, it’s unlikely that all these extra tasks would have been included in the budget, so staff are constantly under time pressure. And the rub is that they know that, if they were asked, they could probably suggest workable solutions.

An analysis of the research data found that about 80 per cent of the undocumented interfacing activities all had the characteristics of the examples described above – chasing missing equipment, doing avoidable rush-jobs etc. I use the word “noise” to describe such processes. The frightening statistic is that, even in high performing organisations, up to 25 per cent of resources are typically absorbed by noise. For some less fortunate organisations, this figure rises to 60 per cent or more.

When managers are asked to document in detail what their staff actually spend their time on, categorising these tasks in order to highlight problems and propose solutions, such requests often tend to drop into the “Sorry, too busy” file. The level of detail required to expose noise can be a stumbling block, too, unless an efficient and cost-effective method of handling the volume of data is used. But, with the right tools, it is possible – and working with employees to do it makes them really keen to fix the problems that they’ve struggled with for so long.

Finding noise not only gives an immediate opportunity for cost reduction; it provides a foundation for systematic and continuous improvement. Employees are committed to the exercise because it measures their reality, revealing the constraints and sources of process failure. Managers who suspect that processes are failing can pinpoint all causes and prioritise them for correction.

The imperative for most organisations this year will still be to improve productivity. But trying to motivate their employees by giving them financial incentives to work harder etc. simply misses the point. You’ll find the real improvements only when you get close enough to the hidden detail that exposes noise – the unanticipated and undocumented interfacing activities that every organisation could do without.

Finding the noise, working out what’s causing it and eliminating these problems should deliver at least a 25 per cent cost saving, probably with no capital investment.

(This article was first published in ther May 2010 edition of Financial Management.)

About the Author
Brian Plowman is managing director of DevelinBevington, a consultancy specialising in productivity improvement. Brian can be contacted at: .

  cost