Overhead reduction projects can be sensitive and challenging. This article in the ‘performance improvement’ series focuses on our vision and ways to ensure they succeed on all levels. By senior managing consultant, Ewart van der Steege.
Few organisations are fully aware of the huge potential to improve efficiency in teams and activities not connected directly to a product or service – their so-called overhead departments. Our last article about optimising overhead costs showed how most cost reduction initiatives in financial services companies focus on primary processes. But overhead departments, such as HR and utilities, have grown in size faster than primary ones. So, it is more important than ever for overhead departments to unlock cost reducing potential, increase their business added value and help their businesses stay competitive.
Over the last decade, Delta Capita has been involved in many overhead restructuring projects. This article shares our vision and lessons learned. Without careful consideration of these lessons, such initiatives have a significant risk of failure.
Outside and inside working together
Reorganisations that aim to reduce costs are sensitive. Not all managers feel comfortable in restructuring an organization and performing critical analyses that could result in letting go employees they have worked with for years. Therefore, an experienced outside view is essential.
No-one knows the organisation better than its managers and employees. So cost reduction projects should always be performed together with staff and internal customers. But an outside view offers new insights into possible savings and improvements based on experience with similar organisations.
The presence of an objective, external party often makes the unspeakable negotiable. They inspire with a vision from outside but using the experience of internal teams. They guide the process, bring discipline and challenge beyond the limits of the comfortable.
Ownership and involvement of management
There are two ways to optimise overhead departments - explore the potential for cost savings in that organisation; or help it achieve a predefined goal, such as a 20% reduction.
In both scenarios, management ownership and involvement are crucial. Although using outside help, it should be clear that management is initiating and supporting the project. This means clear communication on cost saving goals from the start, and transparency and decision-making from management throughout the process.
Ensuring as much support as possible for cost saving initiatives is crucial, especially from management. Without it, you can end up in endless conversations about why it’s happening. But sometimes, during the process, it is also necessary to apply measures without support, based solely on the expert, well-substantiated knowledge of external partners. In this case, managers need to trust that their advisers are acting in the best interests of the organisation.
This highlights a difference between the always-required support from management for the why and what of the goal; and support for how you can achieve it. Management support for ‘how’ the goal can be reached is usually preferable, but not always necessary.
Integrity and dignity
Because cost reduction initiatives are sensitive, it is essential to establish ways of working from the start of the process and throughout. This helps achieve structural, supported solutions in a positive and constructive manner.
It does not mean avoiding hard decisions. You can’t gloss over the realities any more than you can pacify wild animals with soothing music. Although some measures can be painful and difficult, decisions should be discussed with integrity, dignity, mutual respect, and an open mindset. All focussing on the overall goal and not on persons and personal benefit.
The dangers of benchmarking
External benchmarking data is often used when guiding companies towards new models for their overhead departments. But benchmarking results often suffer from incompatibility and unclear underlying causes. Each company makes different choices in the way they organise supporting processes, and benchmarking often cannot accommodate this specificity.
For example, if an organisation’s vision is a decentralised HR department, managers will have lots of responsibility and the HR department will be relatively small. But if the same organisation changed to a centralised HR department to unburden managers, that would require a different solution.
Both can work. But if you apply a benchmark to determine the size of the HR department without understanding that underlying vision on centralisation, you will not get the best customised solution.
Seeing implementation through
Cost saving initiatives do not stop when analyses and decision making are done. They end when implementation is completed. Implementation starts by translating decisions into a roadmap and action plans. The external experts and internal management should discuss how the implementation will ensure changes are embedded structurally.
Management can decide whether the organisation can implement the changes themselves, or if they need external help for that too. After implementation is complete, benefit tracking is also crucial to ensure continuous improvement.
How Delta Capita can help
It is a great challenge to propose and discuss difficult or painful restructures of overhead departments. But at Delta Capita, we know from experience that, with management ownership, close cooperation, and integrity and dignity throughout, implementation can be successful and result in sustainable outcomes.
The Delta Capita team has extensive experience in improving performance in financial institutions. To find out more, contact us today or visit our Performance Improvement page.
This article is part of Delta Capita’s ‘performance improvement’ series. The other articles in this series are:
The future of cost proofing: four key considerations
Delta Capita’s costimisation – how to cut double digit costs
Unlocking cost saving potential in overhead activities
Continuous improvements - the never-ending quest for eradicating a status quo
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