Friday, May 1, 2015

Processes and People


It is easily forgotten that a firm is far more than just the sum of its employees. Indeed, the success of a company is the result of the contributions of all of its assets. These assets, tangible and intangible, consist of e.g. its existing stored information and experience, the efficiency of its organisation, its connections with government and the local community, its established processes, its IT systems, its intellectual property (including the brand), its material resources (including inventory), its land and real estate, and, of course, its human capital. 

Employees are merely one part of the many assets the company uses to reach its objectives. Apart from the employees, an important set of company assets are the processes that the company has established over time. Hardly any employee knows all the processes of the company they work for. Most processes existed before the majority of the company's employees started working for the company, and most of these processes are still in place when they leave it.

The modern company that is looking to grow in a competitive environment is so dependent on such processes both internally as well as towards its customers and suppliers, that it could arguably be stated that it is the employees that are there to make sure the processes function properly, not that the processes are there to support the employees, as is often believed. At the core of this observation is the fact that the human factor is a risk that must be monitored and mitigated as much as possible because man is fallible.

Therefore, in order for company processes to be as little disturbed as possible by indecisive and erroneous human actions, the selection of key personnel is made carefully. The modern corporation is structured in such a way as to make sure there is little possibility for it to be subjected unreservedly to the influence of the limited and flawed human being. Companies generally try not to depend crucially on any single individual, making sure that no one is irreplaceable.2 As J. K. Galbraith observed:

In the large organization, even the risks associated with the selection of leadership are reduced. Organization replaces individual authority; no individual is powerful enough to do much damage. Were it otherwise, the stock market would pay close attention to retirements, deaths, and replacements in the executive ranks of the large corporations. In fact, it mostly ignores such details in tacit recognition that the organization is independent of any individual."[2]

The importance of processes in corporations can be illustrated by the “chain theory” that is part of Theory of Constraints (TOC), which was developed by Eliyahu M. Goldratt in the 1980s.[3] In this model, the human resources of a company are seen as links connected together in complex processes or “chains” These links make up the chains; they allow the processes to flow along the chains. A company is thus made up of many such interconnecting chains, visually forming a sort of tree. Every division or department within a company is as slow as its slowest and thus most costly link on each chain.

A company can improve its performance and lower its costs by identifying and strengthening its weakest links; the objective is to remove the bottlenecks. This can be done for example by adding resources, rotating employees, providing training, modifying processes or redirecting information flow. Once a solution to the weakest links has been found, other employees or groups of employees become the new weakest links, and the process of searching, identifying and resolving these weaknesses is then repeated until the cost of doing so exceeds the cost of not dealing with it. 

The way most companies deal with quality control for processes and for employees is revealing of where their priorities lie. Quality control is often given the highest priority for processes; modern companies often go to great lengths to assure state-of-the-art processes, spending both huge amounts of time and money to implement and perfect them. However, the same can rarely be said for employees. Companies instinctively follow the adage that no one is indispensable.



Notes:

[1] This is especially true in recent years as the average employee turnover has increased.

[2] J. K. Galbraith, The Affluent Society, p84 (Penguin Books, 1999).

[3] See www.goldratt.com