CHAPTER 4
Reorganize the Activities That Affect Performance: The Structural System
The structural system is the way that you are organized. Activities that are well organized maintain effective control of their work, keep variances in their processes down to a minimum, use their resources effectively and efficiently, and have a high degree of communication. They are structured in a way that promotes collaboration and teamwork when required and are designed to enable decision makers to be as close as possible to their customers and to provide them with excellent service.
While this book is designed primarily to teach government field managers how to improve performance within their individual areas of responsibility, it is important to look at both the entire organization’s structure and the structure under the control of the manager, since the overall structure impacts heavily on the local organization. The better you understand the overall structure and the rationale behind it, the more you will be able to adapt locally.
For example, if you understand where the true power is in the structure, you will know whom you need to forge relationships with so that you can get things done when you need to or where to go to influence the organization’s policies. Moreover, at some point in your career, you may be in your organization’s headquarters making decisions about its structure, so it’s better to learn how to do this now.
In my experience, organizations with the best structure use a clear set of principles to help guide the decision making. Principles ensure that the thinking is clear, consistent, and focused.
While there is plenty of information out there on this issue, I found that the Minnesota Department of Health has put together a particularly good set of guidelines that should work well for most government organizations. Here are the principles that it used to help design its structure:
“Organizational structures should be as simple and understandable as possible.
Organizational design decisions should be made first on the basis of department-wide perspectives and needs, then on the division or section needs and perspectives in order to optimize resources and our ability to achieve optimal efficiency.
When new programs or functions come to the department, the first consideration should be whether they can be integrated into existing organizational and management structures and hierarchies. If programs are not located in a division (e.g., Executive Office level) an adequate level of administrative support must be provided.
Organizational structures need to be fluid, responsive and adaptive to change. Some functions because of their sensitivity or stage of development may need special visibility in the organizational chart.
Organizational structures should reflect the natural flow of work and assist in the elimination of handoffs and redundant activities.
Structures should facilitate the identification of work processes, pinpoint accountability for decisions and facilitate efficient management decision making.
Organizational structures should reflect and be consistent with how our clients and customers experience us and internal organizational walls should be as invisible as possible.
Structures should facilitate decision making as close to the point of contact with our internal and external clients as possible.
The formal organizational structure should support professional development and innovation.
Structures should facilitate integration and coordination among related functions.
The organizational structure should help to ensure communication and the availability and exchange of information across the organization.
Structures should facilitate collaboration between units, staff, management and stakeholders. They should minimize the number of layers of management and each layer should add value to the organization’s ability to achieve its mission.
The number and sizes of organizational units is determined by the work to be done and one size does not fit all situations.
To the extent possible, internal support functions (e.g., communications, facilities, finance, human resources, information technology, legal, and legislative support) that cut across the entire organization should be grouped together to ensure efficiency and effectiveness.
Seek information about what organizational arrangements are working well, and act to preserve them. Do not move boxes around unless doing so would fix a problem.”1
As you can see, these principles are very consistent with the overall approach to designing an organization as articulated by the OSD model, which I described in earlier chapters. Interestingly, it is also very similar to the approach we took when we designed VA’s New York Regional Office and ultimately received Vice President Gore’s Hammer Award.
The principles are clear, logical, and holistic and focus on the big picture, as well as on collaboration, communication, efficiency, effectiveness, and accountability. Moreover, they are designed to deliver customer-focused service and to put power in the hands of the people closest to the organization’s customers. Organizations that use principles such as these to design their structure(s) will make decisions that are sound and logical and will contribute to enhanced performance.
An organization’s structure is typically depicted in an organization chart, which shows the rank and relationships within the organization, and explains who reports to whom. Usually, organizational elements that are shown on the same line within the chart as others are perceived to have the same degree of status or rank within the organization.
It is important to recognize that organizational charts have their limitations, as they merely show the organization’s formal reporting structure. What they don’t show is the organization’s informal power structure, which is often built upon personal relationships and can sometimes circumvent or even subvert the formal structure.
In most cases, government organizations have several levels of organizational charts; one shows the overall organization and its individual business lines, staff offices, field organizations, and so on; one shows each business line and staff office in more detail; one shows each field installation; another illustrates the sub-elements of each field installation (e.g., each division or service).
Overall Structure for an Entire Organization
Virtually all government organizations operate within some form of a pyramid, meaning that the higher you go up the pyramid, the more power you have and the greater the number of people who report to you, either directly or indirectly. These days, however, many government organizations are so complicated that it can be difficult at first glance to see the pyramid, especially since many of these organizations now have multiple functions and a wide variety of staff offices.
In my view, there are a number of factors that should be considered in designing a sound overall structure for a government organization.2 First of all, the lines of authority should be clear (i.e., everyone should know to whom they report). This also means that the role of headquarters (aka central office) should be clear relative to the field. Normally, headquarters should be responsible for policy, strategy, program development, coordination with the appropriate legislative bodies, demand creation (ensuring that the organization’s customers are aware of the products and services being offered and are using them as intended), and oversight. The field is usually responsible for policy implementation and performance delivery. Naturally, there is plenty of overlap between both institutions (headquarters, of course, also has to focus on performance; the field also interacts with legislative bodies and tries to create a demand for their products and services).
Throughout my career, I found that, by carefully studying the organizational decisions made at the national level and the ultimate impact of those decisions, I could spot evolving trends that I could apply locally. For example, if the nation was moving toward a centralized design model, it was better to apply the same model locally, since it was surely going to be required at some point. Moreover, I also learned to study the impact of national decisions on performance, since the same lessons ultimately apply at the local level.
A major concern in designing organizations is scope; organizations shouldn’t want to have so many elements reporting to one individual that she becomes overwhelmed or can give only a limited amount of attention to many of the elements. One way to handle this is to have multiple elements report to an individual, such as a deputy assistant secretary, a deputy undersecretary, a deputy director, or an assistant division chief, who then reports to the top official in the organization. The downside of this approach is that you create an extra layer of management between the elements reporting to this individual and the top person.
The same thinking should apply when local design choices are made. If you are adversely affected by these choices, you need to raise these concerns with upper management.
Another consideration is the number, size, and location of both line and staff offices. For example, are the line offices (those that deliver your products and services) located where the customers are, and, if so, do they really need to be there in this day and age of advanced technology? Would it make sense to close and/or move some of the offices to lower-cost areas in order to save on overhead and rent, be able to recruit from the top of the labor pool, and reduce your turnover? What about the political ramifications of a major consolidation? What would the outcry be like? How would the union(s) react?
Does the organization need to have multiple staff activities (e.g., human resources, finance, mailroom, information technology) throughout the organization? Can it save money, ensure more consistency, and free up FTE that could be redirected to direct labor through consolidation?
Centralizing Work Teams
With respect to performance management, there is always some degree of tension around the role of headquarters in this area. For example, if an organization has multiple product lines that are delivered in a field office, that particular field office usually reports to a director, who then answers to an area or network office, which is responsible for performance management. There is nothing wrong with this approach as long as it is recognized that every design has its pluses and minuses.
The plus side is that field offices in which multiple business lines or programs are grouped together tend to focus on overall service to their clients, which is a good thing. They, in a sense, offer one-stop shopping to their customers, which can be highly desirable from the standpoint of customer satisfaction. In addition, there is generally more interprogram communication and cooperation under this approach, simply because people from different areas work near one another. The net result of this option is that each local business line tends to stay less in its silo and is more likely to work with other lines and thus offer better service.
The problem with this approach is that the headquarters’ program offices, which are responsible for setting policy, are sometimes left out of the performance management process, which is managed by an area or network office. This can result in a disconnect among policy development, implementation, and performance management and have a profound impact on the employees in the field. In other words, employees sometimes feel a bit divided because they seem to be serving two different masters—their area/networks offices and the various program offices that set policy.
One also has to question whether colocating multiple business lines in the twenty-first century still makes sense in all cases. After all, technology often makes it easy to move work from one location to the other, while making things transparent to the customer. The key here is to look at the organization design from a holistic point of view and then design the entire organization in a way that is effective and efficient and allows it to meet the needs of its customers, stakeholders, employees, and taxpayers.
These same decisions also need to be made at the local level. In many cases, you will have the opportunity to either participate in the decision-making process or at least influence the decision. Often, your degree of involvement will ultimately be a function of how well you understand the principles of systems design.
A Word About Contracting Out Work
During my career, I witnessed an enormous amount of contracting out government work to the private sector or to another government entity. In fact, quite a few government organizations have viewed contractors as an important part of their extended structure. Many, if not most, of these initiatives have made perfect sense, especially when the government organization did not have the requisite expertise to perform the work and/or when the private sector or other government entity could do the job at lower cost.
Some of the activities that I have seen contracted out have included security work, laundry services, property management, payroll, and building management. The idea here was to allow the organization to concentrate on its core mission and to farm out the support work to someone else. In most cases, this worked pretty well, although the transition was often pretty challenging.
For example, when contracting out, you need to determine what you will do with the employees whose jobs are affected. If only a few are involved, that is usually not a problem. However, if a large number of employees are impacted and they all cannot be absorbed within the organization, you will have a different set of problems on your hands. In fact, you may have to resort to a reduction-in-force (RIF) in order to address your excess employees, and, believe me, having lived through several RIFs, I can assure you that they can get very ugly.
Another issue you will have to deal with is managing the transition. After all, while contracting out work in order to save money sounds good, the process is rarely neat and clean. Once the affected employees know that the work is being contracted out, they are usually more focused on finding another job than they are on keeping the work flowing. That is not to say that they will intentionally do a bad job; they will not, because the vast majority of government employees have enough pride in their work that they will continue to try to do a good job. However, during the transition, people will take more leave than usual and try to or actually find other work; they will tend to be a bit sloppier because of the uncertainty of their situation. The point is that while the organization will be expected to continue to do good work during the transition, you shouldn’t be surprised if you see some or more than just some slippage.
Furthermore, remember that contractors are not infallible, either. That is because it’s one thing to write up a successful bid and quite another thing to then pull it off. On several occasions, I’ve seen contractors take over work that they were woefully unprepared for, resulting in a rapid deterioration of service relative to the government’s performance.3 Moreover, even when the contractor is quite good, there is usually a fairly lengthy period where the contractor has to get up to speed—learn the technical aspects of the government’s program, train its own employees, develop its computer systems, and so on.
The purpose of this discussion is to alert government planners who are considering contracting out to some of the pitfalls that can occur. Whereas there is certainly a place for contracting out, it is important to recognize both the strengths and the weaknesses of such an approach in the context of an overall government structure.
Short-Term Contracting
Another approach to contracting out work is short-term contracting. Under this scenario, a function is not contracted out in its entirety. Rather, the organization contracts with someone to perform a specific task or function for a finite period of time. For example, this might involve performing a management study, setting up a computer system, or zeroing out a backlog of unprocessed mail.
The advantage of this approach is that it quickly fills a need by bringing desired expertise into the agency for a limited period. In a sense, it’s like bringing temporary employees into the organization, except that the contractor is not technically a government employee. To me, there are times when this approach works better than hiring temps, because (1) the contractors are experienced at handling short-term projects; (2) they normally specialize in certain areas; (3) you can often bring the contractors in more quickly than temporary hires; and (4) they can usually get up to snuff more expeditiously because projects of this nature are what they do. The downside of this approach may be cost, because the overall price for contractors is usually higher than for temporary employees because of the overhead involved.
I like to think of this approach as providing the government with much-needed flexibility. The decision to use contractors and/or temporary employees should be driven by the needs of the organization, costs, the ease and speed of finding such help, and similar factors. While short-term contractors may not appear on your organization chart, keep them in mind as part of your informal organization.
The Local Structure
Designing a local structure is obviously not as complicated as setting up a national structure. The scope is smaller, and fewer activities and employees are affected. Moreover, the local organizational structure should be consistent with the national structure and direction, so you shouldn’t have to reinvent the wheel. However, if local managers absorb the lessons described earlier in this chapter, they will be able to apply them locally and improve their structure and ultimately the performance of their organization.
With this in mind, you should still use the same basic principles in designing your local organization as you would if you were designing your national organization. You want to have a lean, effective, and efficient organization that utilizes its resources in the best possible way to accomplish its mission. You also want to have one where there is good communication from top to bottom and where the bureaucracy is kept to a minimum.
Let’s look at an example of an organization chart at a typical government agency. Note that all of the six units shown in the chart have the exact same mission. The numbers shown in parenthesis represent the number of FTE employees assigned to each activity.
When you look at this chart, several things jump right out. First of all, the office of the division chief is very top-heavy. Does he really need a support staff of six FTE (two program analysts, two management analysts, and two secretaries) to help him manage 111 employees? I would assign half of these employees to direct labor activities in order to boost their capacity.
Figure 4-1. Sample Organizational Chart
Also, why have two units reporting to one section chief? Doesn’t this just add an extra layer of bureaucracy to the mix? I would abolish the section chief positions, flatten the organization, and have the unit chiefs report directly to the assistant division chief.
Note that most of the unit chiefs have a supervisory ratio of close to 1:20 or higher. This is much too high, as the ratio should generally be 1:15 or lower.4 In fact, over the past few years, the governmentwide range has generally been well below 1:10.
That is not to say that low ratios are necessarily a good thing, as some private sector companies successfully operate with much higher ratios.5 However, given the situation at this typical government organization (i.e., less-than-optimal computer systems, teams at stage one in their development, heavy external scrutiny), relatively low ratios made sense at that time.
I would create several more units, detail some of the former section chiefs to unit chief positions, and reduce the span of control to an acceptable level.
Let’s review what the new chart would look like:
Figure 4-2. Revised Organizational Chart
As you can see, the new organization is leaner and flatter, with one less layer of supervision. In addition, because several of the section chiefs are assigned to units, the span of control within each unit is reduced, ensuring that there is better oversight and control. Finally, with several of the support positions being rerouted to direct labor jobs, the division has more horsepower to accomplish its mission. All of these changes will result in a tighter, better aligned, and smoother-functioning division.
There are other structural areas you can look at beyond the examples I just cited that may yield additional improvements. For instance, how many clerical employees do you have relative to your professional and administrative employees? In my view, there are different ways of looking at this issue. On the one hand, clerical employees are cheaper than professional and administrative employees, so this approach can generally buy you more FTE and free up your higher-graded employees to focus on the more complex work. When this approach works well, you normally enjoy some efficiencies.
On the other hand, there are often hidden costs to having a large number of lower-graded employees. For example, they tend to have a higher turnover rate, particularly in high-cost-of-living areas. This means that you will spend a disproportionate amount of your time hiring and training them. Second, I have found that clerks often require more disciplinary or adverse actions than their higher-graded counterparts, mainly because they often come from the lower part of the labor pool.6 Finally, if you have many clerks, you may also experience some quality challenges, since some of them may be inexperienced or have a weak command of basic business skills.
All of these factors should be considered when you are designing your organization. In my view, sometimes you may need to even design your workforce around the available labor pool. In other words, I would be more inclined to have a higher mix of clerks to professional and administrative employees if I knew that my pool of clerical applicants was strong.
Other Factors to Consider
Workflow
One other thing to consider on this issue is the workflow itself. Remember that every time you split work between a clerk and someone else, you are adding another handoff to the process, which can be problematic. Also, ask yourself if there are ways to reduce the clerical work through technology. For example, if you have an electronic records system, you won’t need a bunch of clerks to establish files or find folders. That having been said, you will still need some clerical overhead to scan all of your records into the computer system, although some organizations find it advantageous to contract this work out.
Although there is no best way to handle every situation, you should at least be aware of the issues I have outlined, as they will help you make the right decision for your organization.
Grade Creep
Another subject to look at is grade creep. By this I mean that many government organizations have found that the average grade of their employees has climbed over the years. This has happened for many reasons; some of the jobs may have become more complex, there may have been a reduction in the number of clerks, government managers may have upgraded employees in order to keep them, or there may have been a lack of attention to sound classification principles.
If the average grade is increasing for the right reasons, (i.e., through planned management action in response to changing demands or technology), there is nothing wrong with that. That is the way that the system is supposed to work. However, if the average grade is creeping up unintentionally, or intentionally but for the wrong reasons (e.g., to try to subvert the classification system), the organization may have a different set of problems on its hands.
First of all, the higher your average grade, the less money you have to hire additional employees, meaning that your capacity will not be as high as it could be. Second, if your grades are going up on a piecemeal basis, meaning that some people are rewarded with higher grades in order to keep them while others are not, you may create hard feelings and a sense that the same rules don’t apply to everybody. If this happens, the true cost of those promotions may be a lot higher than you think because you may wind up with other hidden costs in the form of grievances, EEO complaints, and lower morale.
I have grappled with this issue throughout my career and tried to be very careful when I upgraded one or more employees. I tried to make sure that my decisions were transparent and that everyone understood what I was doing and why. When people hear that there is a legitimate business reason for an increase in grade(s), they can accept it. They have a much harder time accepting a decision to upgrade people because of their relationship with management. When that happens, watch out.
The point here is that the way you manage your grade structure can have serious ramifications throughout your workforce, so be careful about the way you handle this critical area.
Direct Labor Employees
Another way to look at your structure is to determine the percentage of your employees that are involved in direct labor or, phrased differently, that add value to the process. In my experience, high-performing organizations tend to have relatively little overhead compared to lower-performing ones, making them leaner and more responsive and leaving them more resources to turn to.
For example, I recall studying one underperforming organization that on paper had about 70 percent of its employees devoted to performing its direct mission. The rest were supervisors, trainers, quality reviewers, analysts, secretaries, and what appeared to be nothing more than gofers. When you then factored in time that was devoted to meetings, training, special projects, leave, workers’ compensation, union business, and so on, it was clear that this organization was devoting less than 50 percent of its resources to accomplishing its mission. No wonder it was experiencing performance problems!
The solution here was to redirect as many employees as possible into direct labor7 and to eliminate all the unnecessary meetings we could; to streamline the training time so that it was both effective and efficient; to do a better job of managing and controlling leave, especially unplanned leave; and to reduce the number of employees on workers’ compensation.
The point of this chapter is to show you that there are many, many ways to improve your organization’s structure so that it will perform better. Although an organization chart is an excellent way to depict the organization’s actual structure, you should continually examine it and the forces beneath it for improvement opportunities, especially since it has to be viewed as a living, breathing, and constantly changing document. After all, your workforce does not remain static, since people come and go; therefore, you should, both formally and informally, make subtle or even more far-reaching changes in your organization in order to ensure that it is living up to its potential.