Article: The Winds of Change in Organisational Design

#ChangeManagement

The Winds of Change in Organisational Design

Companies should actively seek out alternative organisation models, which can drive growth without administrative costs
The Winds of Change in Organisational Design

The 17th Annual CEO Survey has thrown up some expected and some interesting insights.

Ninety-seven percent of CEOs in India are optimistic about their company’s revenue growth prospects in the next three years and 43 percent feel that the global economy will improve over the next 12 months. India’s macro economic performance in the first quarter of FY ’15 justifies this optimism. While the mood appears to be upbeat, the CEOs have also identified some challenges which they feel can impact the future course of business.

  1. Cost optimisation continues to be on top of the agenda with 65 percent concerned about rising labour costs and 83 percent having initiated cost-reduction programmes in the last 12 months.
  2. Seventy nine per cent of Indian CEOs view technological advances as a factor that will transform the way they do business in the future and 57percent have either invested or are planning to invest significantly in technology.
  3. The ability to adapt and leverage the evolving demographic landscape is also emerging as an important force. 71 percent view demographic shifts as a key global trend to look out for.
  4. Lastly, with 81 percent concerned about skill availability, talent scarcity continues to be a potential threat to future growth prospects of organisations.

Although these areas are not immediate revelations and HR leaders have been working over the last few years to address them, the very fact that these concerns still exist may be indicative of the effectiveness and impact of these interventions. Indian organisations have typically taken a piece-meal view of individual issues and have focused their efforts to alleviate them in the near term. The time may have come for us to a do a fundamental re-think and look at solution(s) that are more holistic, encompass all these areas, provide definitive business results and are sustainable over time.

Let’s start with rising employee costs, since often it’s the area of immediate focus and can show definitive and tangible results. Recent research has demonstrated that for every rupee spent on an employee, the returns have been dwindling over the last three years. In the last fiscal year, the return for one rupee spent on an employee of 403 of the BSE’s 500 companies fell to an all-time low of 12 INR of revenue. However, organisations continue to add headcount to drive growth aspirations. Interestingly, 41 percent of Indian CEOs indicate that they intend to increase their headcount by 5percent or more in FY ‘15. This additional headcount may not always be supplemented with the diagnosis of whether the right work is getting done at the right level, whether structural inefficiencies are adding to role gaps and overlaps, whether each level is adding value to the level above and below it and whether a specific skill set needs to necessarily reside in-house. This linear model of headcount addition calls for continuous strengthening of people systems, which add significantly to administrative costs and might not be a sustainable scenario.

Hence, companies should actively seek out alternative organisation models, which can drive the growth agenda without the associated administrative costs. The ideal organisation structure will be flexible enough to be scaled up or down based on business requirements and talent needs. The organisational model of the future will be the one where ‘core teams’ are supported by ‘contingent entities’ which enables scalability and enhances the organisation’s ability to deliver value by leveraging specialist capabilities. Such fundamental re-alignment may get the full support of CEOs since 78percent of Indian business leaders indicate that they intend to initiate or have already initiated changes in their organisation structure. Interestingly, this model is also corroborated by PwC’s Future of Work Study which indicates that 37 percent of India’s employable population would prefer to work in an ‘Orange’ world where companies begin to break down into collaborative networks of smaller organisations giving rise to individuals with specialised portfolio careers working on short-term, contractual basis.

This model at the organisational level will resemble a hub and spoke with the hub delivering core, value creating and differentiating elements of the business. This will be supported by spokes of freelancing super-specialists and hyper-specialists who work across geographic and national boundaries. They will bring the much-needed critical capabilities an organisation needs (probably not on an on-going basis) to win in the marketplace without having to develop them in-house. Unlike BPOs where predominantly non-core, low-skill, repeatable activities and tasks were outsourced to organisations, here the capabilities being leveraged externally will be highly niche and non-replicable. Also, due to the very nature of these skills, the service providers are expected to be individuals rather than large organisations. The same model will be replicated at the departmental or functional level. Over time, these once niche and now commoditised skills gradually transitions from the external specialists to the internal core team, while the company continues to engage freelancers for emerging specialist capabilities.

Such a model not only provides the economic flexibility to scale up and scale down, but also addresses the strong talent scarcity that most organisations face today. In fact, it will help them leverage talent without necessarily employing them, and over time develop the capabilities in-house.

However, the impact of this model is most strongly felt in the light of India’s evolving demographic and talent landscape. It is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37 for China and 48 for Japan, making us the country with the largest and youngest employable population in the world. This will see a significant increase in the millennial workforce whose need for flexibility and work-life balance (>70percent of millennial employees vs. 63percent of non-millennials indicate that their work demands interfere with their personal lives) will be need to be addressed, and this model does that. At the same time, with advances in medical sciences and other social factors, India will see an increase in older workers and women among the employable pool. (Employees retiring after the age of 60 years to see an increase from 38percent currently to 68percent in 2022). This contingent workforce model will allow organisations to tap into their capabilities and at the same time allow them to be in control of their careers and work on their own terms.

A key element to make this design work will be technology. Technological advances will allow for easy movement of secure information between the hubs and the spokes and enable specialists to operate without geographical barriers coming in the way.

However, this could throw up some interesting challenges from an HR perspective.

Productivity, commitment and culture: HR and business leaders will be called upon to define the rules of engagement to drive more effective collaboration between the hub and the spoke. They will need to outline governance structures for driving productivity and performance among the workforce. Questions like how to drive accountability and commitment among the freelancing specialists and what kind of culture should be built which can be sustained in such organisations will need to be thought through.

People analytics may play a big role here in identifying what drives different hyper specialist groups and thereby develop interventions. However, issues around data integrity and ethics will need to be ironed out.

Leadership: The definition of leadership may undergo a significant change in this context. Command and control styles will need to be replaced by greater emphasis on lateral leadership. The success of this model will hinge on senior leaders’ ability to collaborate and influence their extended workforce and create an inclusive culture. At the same time, with direct control being significantly curtailed, their ability to operate in ambiguity and uncertainty will become critical.

Skill development: The very model will survive on the ability of the specialists to re-skill and build strong specialisations in line with the needs of the organisation and business landscape. The onus of capability development will clearly shift from the employer to the employable population. In order to ensure that it is sustainable, organisations and HR leaders may need to work with the government to develop and drive the national capability development agenda. At the same time, building internal systems and processes to allow the specialised skills to be internalised over time, will need to be focussed on.

Managing the transformation: Lastly, all these developments will call upon HR leaders to drive the transformation agenda. With the average planning horizon of Indian organisations being in the range of one to three years, this agenda may need to be re-booted every couple of years to ensure success. A structured change approach, which integrates the different strands of the model, is necessary to drive implementation. Interestingly, 96percent of Indian CEOs identify the need for strong change management and feel that their HR teams are capable of championing it. It needs to be seen if the HR community can live up to this challenge.

Topics: #ChangeManagement, Strategic HR

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