Consultants' Corner

Reaping the Benefits of Parkinson's Law

Steven Callahan
Insurance Experts' Forum, June 9, 2011

In a 1955 edition of The Economist, Cyril Parkinson coined the adage “work expands so as to fill the time available for its completion.” While intended as the simple lead sentence to a humorous article, the adage gained a life of its own, reinforced by John Murray’s 1958 book of essays, Parkinson’s Law: The Pursuit of Progress.

From humor to reality: studies were then conducted within Great Britain’s Colonial Office to determine the causes of an inexplicable growth in overhead.  The findings?

1. Officials (management) tend to add subordinates in lieu of allowing staff to be added to "rival" organizations; and,

2. Over time, officials (management) create work for each other at a rate of 5 to 7% more per year regardless of the amount of "real" work being done.

Not surprising for those who work closely with organizational design and operational efficiency.

Fast forward to today’s economy, in which economic forces combine with large variances in productivity to create challenges to successfully achieving target growth and profitability. These challenges bring an intense pressure on leadership—pressure for performance that can seem almost overwhelming at times. Under this pressure, the unfortunate reality is that more often than not reactive, short-term decisions get made; decisions that have long lasting and negative impact on performance.

Yet if leadership is able to extricate itself from the distracting clamor for action, instead taking a thoughtful look at the overall situation from a strategic perspective, history shows that there is typically opportunity hidden within crisis.  Anecdotally, yet consistently, it has been shown that it is in times of crisis that millionaires are made and companies rise to the top of their industry or fall to the bottom. The turmoil of today’s markets, in hindsight, will be shown to have brought along similarly dramatic opportunity for those willing to rise to the occasion.

Being strategic amidst turmoil is a bit like firefighters trying to decide where to dig the firebreak while trees around them are aflame. It takes an intense level of concentration, which in our industry translates into a focus on product competitiveness, distribution channel effectiveness, operational efficiency, strategic investment levels, talent management, and customer service.

Many companies ignore the benefit of the firebreak and instead turn their hoses on the burning trees, typically by initiating generic cost-cutting measures which, for most companies, translates into headcount reductions.  These reductions are typically ordered as an across-the-board cut; indiscriminately set at an arbitrary level so that the pain can be equally shared across the leadership team. While this may be an emotionally equitable approach to expense savings, it is not an effective strategy for the forward-thinking company. Mandated percent-of-budget cuts rarely achieve the elimination of "fat" expected, but instead end up often detracting from longer-term necessities, reducing critical intellectual capital, or generating a subtle deterioration in an area of competitive advantage.

Consider the earlier reference to Parkinson’s Law. While the cost-conscious manager will attempt to maintain efficiency regardless of financial  condition, the less attentive will likely fall prey to Parkinson’s, hiring as allowed and then benefiting from the work by filling their additional staff’s time—not noticing the associated decline in actual transactional productivity. During times of profit and growth, this is acceptable but when faced with turbulent markets like we have today, the impact of reductions is dramatic. In effect, the cost-conscious manager is faced with cutting actual "meat"—intellectual capital and talent that will be expensive to replace—as they have preserved productivity even during the times of growth. Conversely, the Parkinson’s manager will have gradually built up an excess level of staff they can cut without impact as their staff simply returns to prior levels of productivity without any detrimental impact to service or effectiveness. To make matters worse, the Parkinson’s manager is in all likelihood being praised for his or her ability to weather the storm.

So how does the strategically-focused organization avoid the anomaly of Parkinson’s Law, especially given the current economic environment?

One of the quickest and most equitable methods is through the use of demand-based capacity models that, based upon actual transaction data, illustrate the required number of employees necessary for a given set of functions. By accounting for transaction times along with vacations, sick time, staff experience, and predetermined overhead factors, the capacity models are able to objectively forecast staffing needs based on projected fluctuations in demand. Given that the models are based upon actual transaction times, using techniques like direct observation stopwatch studies or time ladders, there is no room for Parkinson’s Law to gain a foothold—there is no room for surplus. The demands of pre-measured transactions lead directly to the determination of required staffing levels, creating the ability to trim staff-related costs in a way that will have the least negative impact on productivity and service.

As a result, companies that have implemented demand-based capacity models rarely resort to arbitrary across-the-board cuts; instead, they have the ability to focus on areas where cost reduction is justified by surplus capacity. As a result, no longer is the cost-conscious manager penalized for efficiently managing their staff, while the Parkinson’s manager is now forced to identify and eliminate the non-value-added work that has filled the available resources over time.

There are a few other exceptional benefits to having these tools at hand; specifically, the ability to run "what-if" scenarios that help estimate:

1. the staff required to do a specific function within a unit;

2. individual performance levels compared to overall unit performance;

3. the impact of procedural or systemic changes on staffing levels; or 

4. the ability to calculate overtime and contingent staff needs for addressing backlogs.

The steps involved in developing effective demand-based capacity models are relatively straightforward.

1. Identify the key drivers that generate work.

2. Determine the individual work times for each driver.

3. Develop the maximum operating efficiency for the staff within the unit.

4. Calculate the volumes of work for each of the drivers being modeled.

5. Incorporate all of the aforementioned factors, checking for reasonableness.

Given the economic challenges we face, what better time than now to search for the inefficiencies in your organization, recognizing the inevitability of influences like Parkinson’s Law over time. Using tools like demand-based capacity models, subjectivity can be replaced by objectivity and arbitrariness by reason. The result, for those that take the time, will be a healthier and more competitive organization.

Sir Winston Churchill said it best: “However beautiful the strategy, you should occasionally look at the results.”

Steve Callahan (steve_callahan@renolan.com) is a Senior Consultant and Practice Development Director for the Robert E. Nolan Company, a management consulting firm specializing in the insurance industry.

 

 

 

 

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