Organization Pitfall: Specialization and Cost Cutting

In a discussion with another coach earlier today, I described what I have observed is a common path that organizations take. A path that leads to stagnation and business failure.

The coach I was speaking to was my father, Garry Berteig. Among other things, he uses agile in his classrooms for class projects. He also has a great deal of experience with business and organizational administration.

Garry and I were talking about learning, energy and teams. We started to talk about the implications of agile teams for organizational cultures. At one of the organizations Garry has worked, the department he was working in suffered from substantial log-jams due to lack of resources to get specific types of work done.

Here is the common organizational pitfall: Specialization and Cost-Cutting.

1. The Organization Grows

Most businesses and other organizations start with an idea, a need or a person with an itch to do something different. With any small measure of success, the organization starts to grow. If it grows large enough, the people involved become specialists.

2. People Become Specialists

When a business grows large enough there is enough work to be done that it becomes natural for the business to hire specialists: people who are experts at a small part of the overall work of the business. This is allowed by the business having greater cash flow to hire more people. This also allows people to focus more and more on their favorite tasks since there will often be someone else who is better at the not-so-favorite tasks.

3. Specializations Become Canonized

As the organization continues to grow and as people become comfortable in their areas of specialization, there is a self-protective instinct that causes these specializations to become canonized in the organization’s bureaucracy. Career paths, pay scales, management chains, centers of excellence, checks and balances, tracability, defined processes, handoffs, approvals, councils. It becomes difficult to step in and do someone else’s job without stepping on toes or getting reprimanded.

4. Cost-Cutting Layoffs

The large organization with clearly defined roles and procedures becomes slow and inefficient. Inefficiency leads to higher expenses, lower profit margins and eventually even losses. The natural reaction of management is to try to reduce costs. Since people tend to be the most expensive part of most organizations, the natural place to look is to “do more with less” and lay off those who aren’t really contributing that much to the bottom line. Multiple rounds of layoffs can occur until eventually, you are left with…

5. …Fully Utilized Experts

Now the organization is operating at a somewhat more efficient pace by virtue of everyone being fully utilized at their particular role. People are busy 100% or more of regular working hours working on multiple projects or tasks or work streams. This is of course not terribly fun, but everyone keeps with it for fear of their jobs. Unfortunately it can’t last long.

6. The Experts Leave/Get Sick

So when someone drops the ball in a fully-utilized cost-cut organization it is usually because they are sick of the environment either literally or otherwise. Anyone who is really an expert will likely find greener pastures and move on permanently. Anyone who is just barely holding on will eventually become exhausted and get sick.

7. Log-jam!

The work for the now-departed expert starts to pile up. There is no flex left in the system: no one can step in who isn’t “authorized” and all the authorized people are already at 120% capacity. The system breaks down.

This patterns of organizational behavior is something I have personally observed and heard anecdotally from a number of other people. The end result is always the same: the organization ossifies into bureaucracy that may have seemed useful with the original large organization size, but has become constrictive with the post-layoff smaller size. (Actually, the bureaucracy was constrictive of the larger organization too.) The cause of this? A fundamental mis-understanding of people and organizations.

People are Creators, not resources that mechanistically perform work. Trust your people to find creative ways to do things. Only punish individuals for ethical lapses; don’t punish the organization, nor punish people for honest mistakes. Instead, encourage experimentation, learning, individual initiative, creativity, role-breaking, role-playing and cross-training. Check out this brief discussion on generalizing specialists for a little more information.

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