Given the current economic conditions, it’s no surprise that business after business is suffering. Organisations of all types have been extremely challenged by the seemingly never-ending Brexit uncertainty in the UK and stuttering economies elsewhere in the world. The lack of certainty is seriously harming how businesses can operate and how they see investment. The speed of decline over the last 12 months has led to a certain truism; the current shape and size of most businesses will not see them through the coming months…without taking specific action.
Get in shape
There are real challenges in understanding how best to manage the cost of your business to the economic realities; in essence how to manage the ‘OD foundations’…we totally understand and appreciate that. When cost needs to come out of a business, the first instinct is just to ‘get it out’. However, we believe that you need to look deeper, you need to understand the context first and drive on from there.
This is all about ‘forensic OD’; identifying your future shape, size and cost relative to the demands and opportunities today and the potential opportunities of the future.
This is all about creating agile, flexible organisations that grow and contract, change direction, morph themselves, if you will, to meet what its market, its customers and its environment requires. It is about making your organisation fit for today, tomorrow and beyond; moving beyond quarter 4 to Q5.
Even in the best of times, great organisations fail because they don’t understand that their ‘fundamentals’ have changed. What may have worked for them so successfully to get them to their current position of strength can over time become their point of greatest weakness. New entrants come in, more efficient operators deliver better quality at lower cost, etc., and the once mighty business withers on the vine. Only by looking forensically at all aspects of your business and your strategy can you get ‘fit’, not just ‘thin’.
In tough times, the speed of the decline and the steepness of the drop can be scary...very scary indeed. The current levels of uncertainty may cause people to panic, prevaricate and wobble; taking the wrong decisions for the wrong reasons and getting the wrong results.
The need to identify how to reduce costs is extremely important and the pace at which this needs to be done becomes increasingly crucial. Whilst we appreciate this completely, we are convinced that not following the right principles will leave you in a more precarious position afterwards; one where you have cut costs, have less resource power to meet your needs and cannot perform at the levels you require. What inevitably follows is the need to go around the cost-cutting process yet again. You will have experienced the pain but without the gain of improved effectiveness and performance – and this is where ‘forensic OD’ comes in.
What is ‘forensic OD’?
So, what does ‘forensic OD’ imply exactly?
It is our belief that an organisation gets stuck somewhere between having a vision of what it wants to be and do, its strategy of how it is going to get there...and actually delivering that vision coherently. In essence, the good intentions become derailed as the organisation tries to grow.
Cost gets added on to the structures and good practice operations get jumbled and confused. The organisation becomes too expensive, too complicated and too slow to respond as market or consumer demand changes. In effect, the organisation becomes difficult to do business with from a consumer or supplier perspective and too complex to work effectively within from an employee perspective. Knowing what to cut and how becomes unclear – no-one can tell the value adding activities and roles from those that are merely value for money.
‘Forensic OD’, therefore, is an approach that ensures that a business constantly reviews, assesses and takes action on its organisational shape, size and capacity, in order to meet its current demands and be best placed to take advantage of future opportunities. In effect, it makes the organisation focus on delivering for today’s economic reality but with one eye on the future. It takes a deep look at what you have against what you need; it looks into the heart of the business, assesses the workings of all organs and tests its connective tissues. Only once this is done does it take action – and action that really matters. This is not a kneejerk response to market challenges but a thoughtful, deliberate and highly effective form of OD.
Whilst being driven by the over-arching strategy or vision for what the organisation should be going forward, ‘forensic OD’ takes into account structures, processes, capabilities and culture to drive out answers to the following:
Structures; shape, size and operating model:
What structure should we have; what overall shape will drive increased performance, what size will enable us to deliver today but also respond to future needs, what balance should we have between insourced and outsourced operations, where does responsibility and accountability reside, what structures ensure clear decision-making?
Processes; effective delivery at efficient cost:
What processes will make us effective; are our current processes ‘fit for purpose’, do we function seamlessly, do we get the most out of our processes, is the interaction between automated and human processes up to scratch, do our current processes cost too much in time and money?
Capabilities; right people, right skills, in the right numbers:
What capabilities will deliver our strategy; do we have the skills we need to deliver today, tomorrow and beyond, have we got the right numbers of people with the right skills, do we have too many, are there obsolete capabilities we need to get rid of?
Culture; getting the behaviours that drive future success:
What culture drives ur future success; what behaviours and ways of working will help us achieve success today, what do we need to deliver future success, what is currently holding us back that must change, what is brilliant about how we work today that we do not want to lose at any cost?
The answers to each are driven out from an understanding of the strategy or vision of what the business wants to be in the future. This is a reflection of the demands it currently has for its products and services, an assessment of the market trends and a forecast of future opportunities. What is important here is an honest view of volume so that the future shape and size can be forecasted, thus driving the extent of cost reduction required today.
Rather than simply choose a ‘10%’ figure, as we see so many businesses do today (which is no more really than an assumed amount of reduction that it thinks it can manage at any one time), using the ‘forensic OD’ approach you drive the reductions required based on clear assessment of today’s demand and tomorrow’s opportunities.
The principles of ‘forensic OD’
For us, ‘forensic OD’ is about thinking holistically about your organisation, the demands it has to fulfil, where it wants to be, how it executes its core activities and who does it. As important, is the need to set up and drive through to increased performance; making it happen, so to speak.
The principles underpinning ‘forensic OD’ are:
Look to the future: getting the organisation you want means looking beyond the current economic challenges and to the future.
Assess what’s great today: don’t forget that there are things about your business today that are great and could form the basis for some of your future operations. Building on what’s great today enables you to go into the process with positive intent.
Decide what you want to be...and confirm your future direction: you can be so many things but what is it that will give you the competitive advantage and enable you to survive the current challenges and be better placed than your competitors when the markets improve?
Understand the implications: given your cost and market constraints, agree the ‘OD foundations’ (i.e., what cost / revenue is right for today and what must it be in the future?) From this you can drive the decisions on what efficiency savings are required and what areas need investment to grow / generate new revenues, etc.
Structure for greater effectiveness: define the operating model that makes the organisation easier to do business with, function internally and deliver products and services more quickly and cheaply. Seek to identify ways of reconfiguring the organisation that raise its productivity, delivery focus and effectiveness.
Set controls and targets: clearly identify and set within an appropriate governance framework, the targets by which performance will be measured in the future. Measures drive behaviour so be clear that you measure the things you want to see change. Use controls to ensure that cost structures are maintained and that performance ratios drive decisions on increased / reduced headcount. If used flexibly these will drive the new agile organisation that operating to ‘forensic OD’ principles imply.
Drive the transition hard...but bring your people with you: putting in place the new organisation will be painful (change always is) but driving it to agreed timetables will ensure that you realise the benefits that you mapped out at the start. Using a compelling narrative to describe the change and engaging your people throughout the process will speed up their acceptance and drive increased commitment to the changes.
Lead with agility: change of this nature does not happen without leadership. There is a need to constantly drive change; ensuring that your organisation flexes when it needs to in terms of its shape and size, responding to market changes and opportunities that present themselves. Only through this can senior leaders navigate their businesses through the challenging conditions of today and thrive in the markets of tomorrow.
Modelling your business on these principles can be done at pace, with clear drive and focus from the senior team. The resulting decisions – clearly executed – will ensure that you get the right size and shape of organisation to meet your current and future demands, enabling you to make the most of your opportunities.
Taking this forward
Enabling your business to survive the current economic challenges means understanding your need to adopt the principles of ‘forensic OD’. In essence, only by creating a flexible, agile organisation can businesses expand and contract to meet their current demands at the right cost levels without jeopardising their ability to respond when the market improves.
Relying on 10% headcount cuts without really understanding where costs should be taken from will only damage the chances of being the right shape and size to thrive in the future. Cutting the ‘right’ costs based on analysis driven by the principles of ‘forensic OD’ is the only way to do this. Anything else will cause the elastic band effect; costs taken out now ‘spring’ back six to 12 months later as the underlying activity still needs to be done.
Driving organisation restructuring based on ‘forensic OD’ is the best route to manage the challenges of today and the opportunities of tomorrow. It will sustain the benefits of the new, slimmed down and toned organisation today, tomorrow and beyond.
The authors, Chris Parsons and Olly Purnell, are partners at Q5.