There are some board-level people metrics that are sometimes labeled as productivity metrics but are probably better understood as administrative bloat metrics – although you may find that in official documents you get a better reception if they are labeled as “productivity” not “bloat.”
Administrative bloat refers to the fact that in a steady state, bureaucracies tend to become less efficient. This is ironic because everyone in the bureaucracy is presumably trying to make things more efficient, and sometimes they do. However, there are various inevitable forces that can lead to rising inefficiency.
Force 1:
Every manager wants, and can justify, more staff
There is always more work to do than one can get done, which creates pressure to hire more staff. Furthermore, more staff means more power, more prestige and maybe more compensation for the manager, so they have a personal motive to increase headcount. With everyone lobbying for more staff, and no one lobbying for less staff, headcount tends to grow even if everything else about the business (e.g. number of customers) is unchanged.
We have to be a bit careful here because there are many cases where hiring more staff is a good idea. What we want from metrics is a hint as to whether headcount growth is justified or not.
Relevant bloat metrics: Revenue per employee; EBITA per employee; profits / total compensation and similar ratios.
Implication: If these ratios are trending down then we may have more employees than we need.
Cautions: Many factors affect these ratios other than bloat. Furthermore, overemphasis on these ratios can make a company so lean that it hurts performance.
Recommendation: Use these metrics, with a full understanding of their limitations.
Force 2:
Everyone wants to be a manager and every manager wants to be able to give people a promotion
If a manager has a team of six and one is particularly good, then it’s tempting to create a role of “team lead” so that the high performer can get a promotion. It’s also commonly justified as a way to provide a developmental opportunity for a particular individual, but the new position inevitably becomes a permanent part of the structure. The constant pressure to add new layers of management can create inefficiencies.
Relevant bloat metric: Span of control
Implication: If spans of control are too small, we have unnecessary layers in the hierarchy.
Cautions: There is no universally correct span of control, it varies case by case.
Recommendation: Look at outliers, rather than just averages, and remember that too large spans of control can be as harmful as too narrow ones.
Force 3:
The complexity of policies and processes tend to grow without limit
If you take a topic like benefits you may start with some simple rules like “new mothers get time off.” That’s easy to administer until someone points out that if the father is the main caregiver, they should get time off. That leads to the complication of finding out who the primary caregiver is. Then someone asks whether someone who adopts a child, and let’s imagine the child is 14, should get time off. Exceptions and grey areas tend to lead to rules books and processes that get ever more complicated.
Relevant bloat metric: Number of pages in a policy book, the amount of time managers and professionals spend doing administrative tasks, cycle time, estimates of how much time we spend running the organization and how much time we spend changing the organization.
Implication: The tendency towards increased complication creates inefficiency.
Caution: All those rules and processes were put in for a reason and if you remove the rule the reason will remain, leading to it being re-instated. Also, the cost of figuring out which rules to remove can exceed the benefit of removing them.
Recommendation: The alternative to policies or processes is managerial discretion. Many people don’t like this because it puts pressure on the manager to make and potentially have to justify their decisions, and it can lead to inconsistent implementation of policy. The solution is to recognize that there is necessarily a tradeoff in the pros and cons between adding a rule or allowing discretion — but in particular be wary of adding a rule that is there forever just because you didn’t like the outcome of one discretionary decision.
When it comes to reducing existing complexity, the best approach seems to be to rip everything out and start from scratch—this has its own risks.
Conclusion
Administrative bloat is a natural disease much like aging. An understanding of bloat bolstered by data can mitigate the worst of it.
Need a more data-savvy, tech-savvy & business-savvy HR function? Get in touch with Creelman Research; and special thanks to Per Scott for his insights on this topic.