Organizational Constraints: Hiring Skills Not Bodies

Hiring Skills Not Bodies – Constraining Organization Success

Your business is growing. So, you know that you will soon hit some organizational constraints. The first will undoubtedly be related to people. Because  the tasks are outpacing the number of people you have to do them.  You need more people in your organization. The questions you may ask yourself are these:

• Do I need more people, do I need different people with different skill sets or both?
• If I need more people, how many more people do I need?

However, to answer the previous questions requires a better understanding of your organization’s needs. Answering additional questions like the following ones will clarify those needs.

• What specific skills does the organization need to continue to succeed and grow?
• What specific skills does the organization currently have?
• If the organization has the right number of people but needs different skill sets, what approach is best for the organization?
• Train existing employees to acquire the required skills
• Hire new people and let go some of the current team members
• Supplement existing employees with consultants and contractors while the organization “learns” new skills – either through training existing staff or while recruiting new employees.

While it is common for businesses to equate adding another person to the group to increasing productivity and capacity.  Simply, hiring another person may not be enough to alleviate the organization’s constraint.

What Is a Constraint?

A constraint is ANYTHING that keeps your productivity, your ability to generate revenues and profits, from maximum effect. It can be a policy or procedure, a piece of equipment or a computer system.  It can be a market assumption.  Until you identify the actual constraints on your business, the performance improvement is at best going to be incremental within the constraint boundaries –the current inefficiencies which waste existing capacity. If your company needs additional capability and capacity, focus on determining just what is required.

Where Is Your Organization Constrained:

Administrative:

• Do you need more administrative support?
• Do you need someone with computer skills?
• Have you been covering the phones ad hoc (anyone who hears the phone ring answers it)?

Sales:

• Do you need more sales people?
• Have you received government funds for research?
• Has the traffic your business experiences increased (phone or in-person)?
• Does it take more and more calls to get a “live” prospect?
• Do you have more prospects than sales people to call on them?

Operations:

• What territories or products have you added?
• Has your organization grown to 10, 25, 50, 75 or 100 people or more?
• Have you established performance review policies?

Financial:

• Has the business grown or increased in complexity, so you need more accounting and financial support?
• Have you borrowed money and have debt covenant reporting requirements?
• Have you factored (sold) your accounts receivable to generate cash flow?
• Are you operating in more tax jurisdictions (more states or countries)?
• Have you added or increased the number of customers on credit?

Human Resources:

• Are there new employment practice regulations to follow?
• Do you have employee manuals?

Purchasing:

• Are your purchases increasing in size (dollars and quantity), frequency, or complexity?
• Does your organization have complex technical requirements for components, raw materials, and/or equipment?
• Does the quality of your purchased materials and components impact manufacturability?
• Are there opportunities to negotiate terms and conditions (discounts, insurance, lot size, just-in-time delivery)?

Improving Performance By Removing Constraints

These are some of the areas many businesses view as activities that anyone can perform.  Perhaps anyone can do them, but are they done correctly, efficiently, and to the benefit of the company overall?  If we take the example of adding a skilled, experienced procurement (purchasing) agent, many businesses allow the purchasing activity to take place by anyone in the company at any time.  When buying is decentralized, it usually translates to many small buys which, if consolidated, could result in reduced cost and shipping charges.  Furthermore, on more expensive items, a trained procurement expert understands how to negotiate reduced price, early payment discounts, extended terms, and other protections for your company. Skilled purchasing agents also tend to know how to make sure you don’t pay unnecessary sales and use taxes by understanding the rules and regulations.

The challenge for your business is to identify the constraints holding your organization back.  Adding resources, skilled or unskilled, to your team in an area that isn’t constrained will have little to no impact on your bottom-line.

How Do You Identify the Constraint?

First, look at the results you are generating and the resources being used to produce those results.  Make the connection between the activities and processes of your business and the financials.

Second, understand what isn’t taking place.  What returns have you gotten from investments in the firm?  If you’ve added more sales people, but haven’t seen a commensurate increase in sales, why?  If you’ve had an increase in sales volume, have you been able to maintain per unit pricing?  Have costs increased at the same rate as sales?  Have you hit a ceiling on sales – can’t get to the next level of growth?

Third, understand how you measure performance and reward the organization.  For instance, if you are rewarding increased sales volumes, but not tying it to other financial metrics like gross margin, revenues, and profitability, then you may increase the number of units sold and see a decrease in profitability.

Fourth, analyze the operations and administrative processes.  Many organizations find the largest constraint is in the procedural requirements, culture, and management “style” of the organization.  The business owners, managers, and “leaders” get in the way of success by not enabling the organization to take full advantage of the skills, talents, experience, and abilities of the employee team.

Fifth, compare the organization’s perception of its business with the market’s perception of the firm.  Are you running the company and positioning it in the marketplace consistently and in the manner your target customer base likes?

So, there are many more elements to understand to determine what constrains an organization.  Ultimately an organization succeeds or fails on the “how business is done” aspect.  Customer perception is the ultimate determinant of success.  Are you hiring the right skills, experience, expertise, abilities, and talents or are you only acquiring bodies?