September 25, 2012

Management 101 – Profits in the Organization Chart

By special request, the next few blog posts will deal with maximizing profits from an HR viewpoint.  Admittedly, some of what we share may not sound like what you would expect from HR; maybe it’s time for new expectations.  Besides, people-related costs are often the largest cost category for an organization; why not expect valuable, distinctive input from HR, the people – people
I am a huge proponent of organizational charts.  They ahr solutionsre 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.
Every box on an organizational chart must have a classification (Group 1, 2 or 3).  Write each position’s classification directly in or next to its box on the organization chart. Don’t cheat the process; only use the three classifications listed in this blog.  If you have a role that doesn’t fit any classification, that job needs an immediate redesign.
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?
These points are just a beginning to organizational analysis.  The main thing is to remember that people drive profits.  Organization structure can leverage or limit your Company’s performance.  Make sure your Company is structured for success; review your organizational chart, and be sure you are set up to achieve the results you want.

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