I am a huge proponent of organizational charts. They are valuable because they make the root cause of some cost problems more evident and manageable. If you don’t have a current organization chart, you are missing a valuable cost management tool. Make one, and keep it current.
Next,classify the positions on your organization chart. For our purposes here, there are only 3 types of employees…
- Group 1 Employees do something that your organization gets paid for. They are typically responsible for a specific revenue number (e.g., Sales) or the Organization can bill for their services (e.g., Production employees)…or both. Group 1 is all about results…especially short-term results.
- Group 2 Employees do something that directly impacts the success of Group 1 Employees. Usually, the number of Group 2 Employees scales with the number of Group 1 Employees, or with some financial or operational metric. Group 2 Employees include Managers of Group 1 Employees and workers who process inputs or outputs for Group 1 Employees (e.g., Appointment Setters for Sales Team, or Customer Service Representatives).
- Group 3 Employees provide some work output or expertise to support or increase profits. Their impact on the Company’s day-to-day finances is typically indirect and long-term; as a result, it can be harder to quantify the value of their contribution. Scaling the number of Group 3 Employees can also be a challenge. Group 3 employees may include Accounting, HR, Legal, Marketing, IT, Purchasing or other similar functions.
Next, we begin the analysis. Here are some important things to consider…
- Count the number of persons in each classification. Based on your knowledge of your industry, market and unique business, are there enough employees in Group 1 to support the number of Group 2 and Group 3 employees? Is the revenue flow sufficient?
- Consider how well each group is performing. Are their performance goals understood and well designed? Are you able to tie the goals to a financial metric?
- Could you be missing some key Group 3 Employees? Does your Company overpay for routine costs due to mistakes, rework, penalties, or other avoidable issues?
- Are there other ways you can configure your organization to make Group 2 and 3 employees function more like Group 1 Employees?