Chapter 5
Managing Staff Strategically

Staff have competitors
Staff add value
Assessing maturity
Strategic turf
Grow or cut?
Centralize or disperse?


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Chapter 5

Managing Staff Strategically

Excerpt from Downsizing: Reshaping the Corporation for the Future

By Robert M. Tomasko


Few companies manage their staff functions with the same care and attention they give to their line operating units. While this is understandable to the extent that priority attention must always go to customers and products, an insufficient amount of even secondary attention has gone to controlling staff size and scope in many companies. And this has too often resulted, as we have seen, in high overhead, slow decision making, overanalyzed decisions and over-engineered products, and weakened general managers. While use of the techniques discussed in the previous chapter can help pinpoint specific instances of excess staff it is also helpful to take a broader perspective. All of these analytic techniques have some value in identifying how well individual staff groups are functioning at a given point in time. But to understand how staff work should change over time a more dynamic perspective is needed.

The key to this viewpoint is to treat staff activities more like real businesses and less like business appendages. The first step is to disaggregate a staff department into the activities it undertakes or the products and services it provides. The discussion of Customer Evaluation and Activity Costs in the last chapter covers some ways to do this. Then consideration needs to be given to managing them strategically. This means paying attention to their:

- Competitors (including the alternative ways a company can find to do what they do),

- Customers and the value they add to them, and

- Industry dynamics.

Staff departments do have competitors
Staff units have several types of competitors. The ones many have faced recently in downsizing-prone corporations are other, more valued, activities within the business. In some firms these activities might be in sales or marketing as all available resources are directed to help launch a new product. This was the case when The Coca-Cola Company introduced its new formulation of Coke and funds became scare in many non-marketing related parts of the company. During Chrysler's turnaround, and in many companies with heavy debt burdens after a leveraged buyout, the competitor may be the finance department as it gathers cash to meet high loan payments. As CBS, Owens-Illinois and Union Carbide needed to fend off acquirers with the heightened stock prices that improved earnings provided, the competitor became these company's bottom line as every possible measure to generate immediate profits had to be taken.

These competitors are usually difficult for staff departments to fend off. Defense from the budget cuts they provoke usually is limited to following a "little jewel" strategy: pare activities back until only the few most essential remain. Fortunately, not all competition facing staff is as difficult to cope with. Corporate staffs also share the same kinds of competitors as do other parts of the business. These include:

- Their customers,

- Other staff groups looking to expand their range of services,

- Substitutes for the services and products they provide, and

- Some of their suppliers of goods or services.

These are similar to the forces Harvard Business School professor Michael Porter feels drive external competition in most industries. Headquarters staff face potential competition from the groups within the company they serve, especially line managers. To the extent that what has been staff work, such as strategic planning or handling day-to-day labor problems, can be built into the responsibilities of line managers it may be possible to do without or at least reduce the size of the staff unit. This is a popular way to run a downsized company, although it has its costs and pitfalls as we will consider in Chapter Eight and the one that follows.

At times consolidating the work of several staff groups into a single, smaller overall, unit makes sense. This can happen when the public relations department takes over the work of marketing support and investor relations groups. Or when several manufacturing support units are grouped together into a streamlined materials management function. In some companies the nature of equal employment or labor relations problems may suggest they be managed by the legal department. A number of corporate medical departments have expanded into what has been a traditional personnel function as they add employee assistance programs to their roster of services.

There are three kinds of substitutes for many staff units. The simplest is to keep the product or service they provide, but procure it from a source outside the company. Make/buy analyses have convinced many companies it is cheaper to obtain cafeteria management, payroll preparation, security and janitorial services from companies that specialize in being in these businesses. At times this is true for professional services such as legal and business planning. Often the quality of the services may be better when provided by these specialist firms.

The second form of substitution means changing the demands the company places on staff units so they are able to limit the range of things they do. Techniques such as activity costing and value analysis are aids in determining where demand may be reduced. Reports may be issued less frequently, underused studies eliminated altogether, or the range of training provided by the human resources department narrowed.

Finally there are times when the suppliers of inputs to staff departments may be able to take over staff functions. This is a variation on the forward integration strategy that some businesses follow. This is especially true when the staff department is adding relatively little value to the inputs they receive. A computer center may evolve into an information services function that uses the data it once processed for the personnel and finance departments to produce some final reports in these areas for circulation directly throughout the company. Or an environmental scanning unit in the planning department whose primary function was to package and distribute externally published information about future trends affecting the business might be replaced by direct contracts with "think tanks" or outside experts.

These kinds of competitive environments require a strategic approach to managing staff activities if benefits to the entire company are to be maximized. A strategic approach is one concerned with how a staff's resources should be positioned over the long haul. It is one that looks at staff departments not only in terms of how they fit into the company organization, but also how the issues they are concerned with affect, and will affect, the business. This is a dynamic view, not a static snapshot. A strategy for managing staff is concerned about the same objective that an overall business strategy is: how to best concentrate a company's resources for the greatest long term advantage.

Value added to staff customers
Two principles that have long been used in developing strategy for more outward oriented businesses can be helpful when managing staff. They involve considering how much value each product is adding to the company, and examining how far along it is in its product life cycle. These principles can be adapted to plan for staff activities instead of products. Considered together they can provide suggestions about how big a staff group should be, how fast it should grow, and where it should be placed in the organization. Let us start by considering value added.

Specifying a staff activity's value added is not as easy as determining the value a company adds to a product it makes and sells. That can be found by a straightforward calculation. Assessing staff value added, as discussed in the last chapter, tends to be less precise and more subjective. Sometimes it is possible to rank activities based on how well their users have rated they are being served. This can be helpful, but for some kinds of staff work the internal clients are not sophisticated enough consumers to be able to make judgments about what they, or the company, really needs. One way out of this dilemma is to force judgments to be made, by a combination of users and providers, that characterize value added based on what they feel will happen to the company if a particular activity was not there. Views of outside experts can also be helpful here. To simplify the process, judgments can be made in one of four categories. Each is an alternative answer to the question: what would be the consequence of eliminating this particular kind of staff work?

- There would be a critical, severely negative impact to the business that would be hard to recover from. (High value added)

- There would be a significant loss to the company, but one recoverable from. (Significant value added)

- The would be only hindrances to day-to-day operations. (Moderate value added)

- There would be little or no problems caused. (Low, or no, value added)

Which category a particular activity belongs can be a matter of considerable debate. This debate, and the perceptions it surfaces, can often be more useful than whatever particular characterization is finally agreed upon. The value of planning exercises such these is more often the doing of them, that the answers that come at their conclusion. In slotting activities it is sometimes helpful to specify what their value added currently is, and what it should be. It is important to keep in mind that a particular staff product (such as a monthly budget variance report) may be of only low or moderate value added to some companies, but for some others (such as ones on the brink of filing for Chapter 11) it may provide significant or high value added.

Assessing activity maturity
Market planners have developed a well tested methodology to track the development of products over the stages of their life in the market place. It provides them with an idea of when to invest in R&D to produce a new product and when to give more attention to low price promotion to keep sales moving for an older one. This allows them to manage a unified portfolio of products, each with different strategies and customers. Just as products and markets tend to evolve along a life cycle, so does staff work. Using this evolutionary perspective it is possible to have a better understanding of how big a staff department should be, how fast it should grow or shrink and where it should most logically be placed in the company.

Each activity is part of an "industry," made up of related activities, competitive activities, customers, and suppliers of inputs to the staff function. Making judgments about value added by a particular staff activity involved an internal look at it in relation to the business' priorities. The heart of a strategic analysis of staff work, though, is a consideration of how a staff activity compares with others in the outside world (or to consider the dynamics of the industry to which it belongs). To do this the concept alluded to earlier of "maturity" is useful. Individual staff activities go through distinct stages of development, just as do products, industries and even people. Characterizing a staff activity by its stage of maturity will give clues about its appropriate size and place in the company. Four distinct maturity phases can be identified: embryonic, growth, mature and aging. Based on an activity cluster's characteristics, it can be considered to reflect one of these stages.

Embryonic activities tend to be new issues, not just for the company but for industry or society as a whole. Their impact on the company is often hard to determine and there are usually only a few sources of expertise in dealing with them. The "product line" available for each is narrow, and the providers of expertise may come and go quickly. Often the technology needed to handle embryonic activities (which can range from techniques to detect carcinogens in the workplace to the ways to best integrate female talent into the corporate hierarchy) is very limited or even nonexistent. Most of the published information available about these issues is found in often obscure professional journals. Some are talked about widely, then forgotten. Others have more staying power. In the late 1970s computer integrated manufacturing, artificial intelligence, and employee assistance programs had many characteristics of embryonic issues. But a few years later, each "took off" and became growth areas for corporate staff attention.

Growth staff activities are ones that have established their importance on a company's agenda. Spending on them increases more rapidly than do expenditures in other areas of staff involvement. Depending on their popularity, a variety of sources of products and services relating to them emerge. Premium prices are often charged for these; in-house talent becomes more available to deal with these. Depending on the nature of their audiences, "best sellers" may begin to appear.

By the time the "definitive" book on the subject appears (such as Michael Porter's Competitive Strategy), the issue is usually a mature one for corporate staff to deal with. Its overall impact on the company may be sizable, but it is also definable. Total corporate expenditures on it tend to grow no faster than for most staff areas, although they frequently require greater annual budgets than when they were in a growth mode. A clear, and sometimes diminished, number of outsider sources of expertise and services are available. Price competition becomes more common among them, and companies that need outside assistance often find themselves in a buyers market. With the help of the "definitive" book, if one is written, the knowledge needed to cope with these issues has become standardized and is possible to spread easily in-house. Corporate concern is shifting from "staying on top of things" to efficiency and cost cutting. Work in these areas becomes fairly routine and dispersed in the company. In addition to strategic planning, many activities of the controller, legal counsel and public relations department take on these characteristics.

Aging issues are ones so much a part of corporate routine that the fact that considerable staff efforts go into them may be forgotten. They seldom receive conscious attention from senior management. To the extent outside service providers are used, there may be a diminishing number of them from which to chose, or they may have become very fragmented and localized. But unlike the situation of humans in their life cycle, it is possible for staff activities to move in reverse. Rubbish disposal, which is generally judged to be an aging staff concern, has reverted to an embryonic or growth issue for many companies whose waste includes hazardous chemicals. The company travel office, a service so ordinary that many companies let outside travel agents provide all its services, has grown in importance and become a less mature service as deregulation has dramatically changed how this industry operates. In-plant travel services are becoming common and are sometimes even treated like miniature profit centers.

The strategic turf
Few management consultants, when presented with two factors that characterize a situation of interest to executives, can resist the temptation to construct a matrix from them. Imagine a matrix resulting from linking the concept of value added with that of maturity. Its sixteen subdivisions correspond to the possible combinations of these two variables. The most common strategic position of typical staff work is the box corresponding to mature activities of moderate value added. Relatively few staff activities are, or should be, displayed in the high value added row or embryonic column.

This space in this matrix defines the strategic turf of staff work. After a staff department, or several department's, work is disaggregated into individual products or activities they can then be displayed on this one chart. Then decisions about which are candidates for downsizing can then be made. But first several ways of indicating activities should be considered. The simplest is to write their names in the appropriate cell of the matrix. It is also helpful to indicate which are primarily Control Staff and which are Support Staff.

A more complicated way to display activities has the advantage of adding more information on one chart. Each can be represented by a circle, or bubble, with the size of the circle in proportion to the department's annual expenditures on this activity. This way it is possible to tell at a glance how a department's budget is allocated. Companies that have done a thorough study of their activity costs (as described in Chapter Four) can add another dimension to these charts by using the circles to represent the relative size of the total company expenditure on each activity . Activity cost studies usually indicate that considerable amounts of money is spent on staff work outside the organization unit directly responsible for it. Sometimes this happens because of planned decentralization, sometimes because of duplication of efforts, and often this results from the time it takes other departments to respond to requests for information from staff units (filling out forms, going through planning and budgeting exercises, etc.). Regardless, the bubbles can be converted into pie charts with their shaded area representing the proportion of a staff activity's total cost being incurred by the department responsible for it and the unshaded portion the costs borne by other parts of the company. The chart now provides a visual clue to how much money each staff activity is costing the company, and also which areas might be prone to misplaced staff activity.

Using these pie charts it is possible to specify norms about how a company should expect its staff dollars to grow and be distributed over the course of a staff activity's life cycle. The embryonic circle is smallest in size of the four. Only a small proportion of it is shaded, indicating that for many embryonic activities they are too new for one logical home base to be assigned. As an activity grows in importance, and in total expenditures, the breakdown of expenditures changes with the lion's share going to a centralized staff unit. When it reaches the mature stage the total company expenditures on it are usually greatest and are starting to be decentralized throughout the business. From early to late maturity the pace of decentralization increases and total expenditures, company-wide, start to decline. Finally the aging activity comes to the point where total expenditures on it, on average, are less than during its growth stage and much of this work is done through out the company, instead of being concentrated at headquarters.

"Natural" vs. "usual" evolution
The "natural" pattern of evolution implied by this discussion is not something that happens automatically. For staff activities to grow and have their expenditures distributed along these lines, their evolution needs to be continually managed. This is seldom the case. Top management attention is usually focused on other matters and few companies have powerful organization planning units that monitor this development. This results in the evolutionary pattern just discussed being less common than not. Instead the typical path of development for many staff activities involves their budgets continually growing throughout their mature stage and sometimes even into their aging phase. Instead of reducing the scope of work as a staff activity matures, they too often expand and become entrenched in a headquarters group. This state too frequently persists as they enter the aging stage.

It is not difficult to understand why this happens. Managers of staff departments have few incentives to decentralize mature activities and pare down aging ones, even if there is a possibility this may allow them to pick up smaller embryonic or growth ones. Their compensation and career advancement interests too often depend on increasing the number of people reporting to them. These interests coupled with the benign neglect shown to managing staff size and effectiveness by many senior executives, lead to this more typical evolution.

This can result in staff departments, originally designed with clear-cut, important missions, expanding into areas where they add considerable, unneeded expense. One manufacturer originally set up a headquarters engineering unit to prevent cost overruns on a new factory under construction. It did this job very well and was "rewarded" with permanent status. Unfortunately over time it lost track of its original mission and it devoted its efforts to growing by issuing and revising corporate standards for all new construction efforts. Following these increasingly elaborate specifications ended up resulting in over engineered and overbuilt plants - that frequently cost more than budgeted. Another central engineering group was originally established to do work that exceeded the capabilities of the engineers based in the company's divisions. Eventually they expanded their charter and started to review and redo much of the engineering done in the divisions, most of which was easily within the talents of their own technical staffs. The end result of both these typical types of staff scope evolution: costs increase, morale deteriorates, and decisions take longer to make.

Grow or downsize?
The strategic management perspective we have been applying to staff activities suggests a way to decide which activities are candidates for pruning back, and which might be considered for expansion. Expansion, though, does not always have to mean increasing headcount. In the automobile industry the engineering design function has usually been considered one that provides significant or high value added. The introduction of computer aided design and manufacturing helped move this mature discipline to more of a growth state, but it also allowed Chrysler to cut its engineering group in half while speeding new product design. Expansion here referred to expansion of capital investment, not staffing.

As staff activities become more mature, make or buy decisions become more appropriate. These can work in both directions. Sharply increasing legal bills and an oversupply of legal talent in the job market encouraged many companies to save money by expanding the size of their in house legal departments. Much of the "mystique" left lawyering as it shifted from a growth to a mature staff activity. And it became one susceptible to greater management and control. On the other hand, during a time of major organization streamlining General Electric looked closely at its market research and economic forecasting activities for possibilities of outsourcing.

At the same time, though, General Electric illustrated it was applying a differential approach to the way it planned for staff work. A new top-level job was created, that of Chief Scientist. Given senior vice president status and reporting directly to the chief executive, this individual is responsible for identifying new businesses that can be built on technologies developed in General Electric's laboratories. This is essentially an embryonic staff activity. Few rules are available to guide it as General Electric recognized when it appointed an experienced research manager to the position.

As we have already seen with corporate travel departments, outside events can reverse the maturity, importance and appropriate size of an activity. Deregulation in the telephone industry has drastically changed the former aging activity of telecommunications management. Previously this low level job involved only interfacing with a nearby Bell System representative. Now, alternative service providers, new technologies and the potential for multimillion dollar savings through capital investment have increased the staff size and value added of this growth activity.

In some staff specialties as they mature they fragment into sub specialties with different maturities. The esoteric computer center of the 1950s (maturity: embryonic) became the growth information services activity of the 1970s. The staffing levels of these major departments increased accordingly. Technological changes in computer networking and the spread of personal computers scattered this activity throughout the company as it matured in the 1980s. While these are causing some companies to halt the growth of their central staffs, others such as American Airlines, Fidelity Investments, and Wells Fargo Bank have simultaneously set up, General Electric Chief Scientist-style, the senior executive position of Chief Information Officer (CIO). This individual is charged with bringing some order to the technology-caused chaos, but even more importantly is expected to help turn the information processing activities into a source of competitive strength, a more embryonic staff function. To do this they are often given responsibility for other maturing staff activities and told to meld and revitalize them. At Wells Fargo the CIO is in charge of strategic planning and the personnel function in addition to the computer systems. At General Foods the CIO followed the forward integration strategy discussed earlier in this chapter and also controls the critical market research unit. Aetna Life and Casualty Company has its CIO also running the mailroom, publications department and even the corporate art gallery. These consolidations of mature staff functions are one way some companies are controlling their size while increasing their value added.

Identifying targets for downsizing is the most common reason companies go through this sort of analysis. In general the more mature, moderate or low value added activities are the primary ones to consider for cutting back. The general guidelines suggest:

- Embryonic activities: very small staff units, often just a part-time responsibility;

- Growth activities: rapidly growing staff groups for higher valued activities, more stable ones for those less important;

- Mature activities: stable and eventual gradual decreases in staff size should be possible;

- Aging activities: streamlined, possibly reduced to a small core group or completely eliminated.

While using these generalizations is better than the meat cleaver, across-the-board method of staff reduction, it is important to keep in mind they are still generalizations and exceptions will certainly occur.

Centralize or disperse?
This strategic perspective also suggests guidelines for which staff functions belong where. When Brunswick cut its headquarters staff in half it decided jobs like corporate safety director and economic analyst belonged in the plants and divisions, just as Allied decided that was where the bulk of its environmental assurance capability belonged. Companies have a number of options for placing staff activities, including:

- Keeping them centralized at corporate headquarters,

- Scattering them among headquarters, divisions and plants,

- Decentralizing them as far from headquarters as possible,

- Keeping them centralized, but not necessarily at headquarters, while treating
them as a stand alone business by charging users for their services,

- Purchasing them partially outside the company,

- Purchasing them completely outside the company on a long term contract
basis, and

- Purchasing them outside from multiple providers as needed.

Depending on the expected value added of the staff activity and its maturity, outside providers may be cost effective or too expensive. Generally as an activity matures, it becomes more economical to contract it out. Ironically this can also be true for embryonic activities where talent is limited (and hard to hire) and the long term impact of the issue on the business is hard to determine. At times the decision to go outside may be made for political or cultural reasons. The specialists needed for an activity may not fit with the norms of the rest of the company's workforce. In the following chapter we will see how People Express Airline had to contract out some jobs to help maintain its homogeneous corporate culture. IBM and other non-union companies have contracted out jobs that are traditionally filled by union workers. Much organization planning work is done by outside consultants because it would be difficult for an inside group to remain impartial to the political implications of the alternatives being considered.

The placement of embryonic activities varies widely, frequently depending on where the issue was first noticed. At TRW in the mid-1960s the center for one of its group's concerns about equal employment opportunity and community relations was in an engineering unit because that was where one of its managers with a outside-the-workplace involvement in civil rights groups happened to be based. His outside interests made him the first to be aware of changes that needed to happen internally. At times the "logical" home for consideration of a new issue (such as the information systems department for applications of artificial intelligence) may not be the best one because that group is also the most threatened by the new technology, or implication that it has not been doing its job properly. The large U.S. steel producers have too frequently been the last to adopt technological innovations that could have helped them maintain competitiveness.

Growth staff activities are frequently concentrated at headquarters, especially when the value they add is significant, and talent to cope with them scarce and must be shared among a variety of users. At TRW pressure from the Department of Labor in the late 1960s helped put equal employment opportunity high on the company's priorities. This company, like many other defense contractors at that time, was facing loss of federal contracts if it did not develop and implement an acceptable affirmative action plan. Its main problem was that no staff professionals in the human resources department were knowledgeable about such plans and employees committed to integrating the company, like the engineer mentioned earlier, also lacked the needed technical know how. Eventually an outsider was hired, after a difficult search, with some experience in this area. This was also the time of racial riots in Cleveland, TRW's headquarters city, and the company was similarly limited in talent to manage an urban affairs program. A part-time college student with good community contacts was hired to start planning such an effort, a more marginal response to a staff concern of less value added.

By the time staff activities reach the late growth stage more in house talent becomes trained to cope with them. At TRW the corporate foundation staff took over the community relations efforts, and equal employment responsibilities were built into the jobs of many of the human resources staff.

During the mature phase it is possible to turn attention on an issue from headquarters to the divisions and plants. Instead of being considered exclusively "staff work" it is increasingly built into line managers jobs. And staff that previously performed a Control Staff role become more Support Staff-oriented as they assist the managers doing the manager's work. Building the company's capability outside of headquarters to deal with mature staff issues becomes a high priority. Opportunities are found to contract-out parts of the work. As equal employment became more of a part of the management routine at TRW, the human resources staff had time freed to become more involved in productivity and quality improvement projects in the late 1970s. Outside employment services handled more of the recruiting that ten years before was the key concern of the newly hired affirmative action officer. And TRW's community relations activities were broadened to include attention to international as well as domestic issues.

Managing these shifts of attention, and staff resources, has been a way of life at TRW and several other planned downsizers. But most companies have not managed staff work and size as closely. For them the activities considered mature and aging are also those consuming most of their staff resources. These are the most likely downsizing targets, and the ones to be most closely examined for elimination, decentralization or contracting out.

The ongoing management of staff size
General Electric's chief executive, John Welch, summed up these points well when he described the evolution of strategic planning at GE. He said: "Our planning system was dynamite when we first put it in. The thinking was fresh; the form mattered little - the format got no points. It was idea oriented. We then hired a head of planning and he hired two vice presidents and then he hired a planner, and the books got thicker and the printing got more sophisticated, and the covers got harder and the drawings got better. The meetings kept getting larger. Nobody...[could] say anything with 16 to 18 people there." Notice that Welch did not say anything about the planning getting any better. Soon after he became chief executive he significantly dispersed his headquarters planning group.

Managing staff strategically means paying attention to several principles:

- Use concepts such as life cycles and value added to determine staff size and location.

- Enforce sunset laws. Close down, decentralize or contract out mature or aging headquarters activities before starting new, embryonic or growth ones.

- Be wary of professionals' myopia and tendencies to pigeonhole problems and build empires around them. Tie all aspects of staff work back to priority business concerns, especially when making judgments about how much value an activity is adding to the company.

- Always keep in mind alternative, competitive, ways to get done what staff are doing.

Now that we have considered some ways to evaluate staff performance and manage their size, it is appropriate to turn attention to the other major contributor to corporate bureaucracy: excess management layers. This is another topic that John Welch has strong feelings about.


© Robert M. Tomasko 1987, 1990, 2002

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