1. The Nolan Newsletter
People, Process, and Technology
ROBERT E. NOLAN C O M PA N Y
MANAGEMENT CONSU LTA N TS
Four t h Qu art e r 2009 Volum e 36, Nu mbe r 4
3. The Nolan Newsletter
People, Process, and Technology
Table of Contents
Innovation, Growth, and the Expense Challenge.....................................2
That Doesn't Work Anymore.....................................................................3
Enterprise Risk Management:
The Checks and Balances of Strategy Implementation..............................5
Do You Really Need That Bus?...............................................................8
Can You Compete on the New Basis?......................................................10
Reaping the Bene of Parkinson's Law...............................................11
ts
Client Spotlight: Customer Claims Care Centers....................................14
Process Innovation is the Lower-Cost Growth Engine.............................16
Nolan Annual Bank Performance Study
Scheduled for First Quarter of 2010..............................................................18
Toothpaste or Toilet Paper..........................................................................19
Small Potatoes are Harder to Peel..................................................................22
Poised for Recovery: A Powerful Preparation..........................................24
Manage Expenses Continuously....................................................................27
Nolan Events...............................................................................................28
Vol. 36 No. 4 Fourth Quarter 2009
4. Steve Callahan
Senior Consultant / Practice Development Director
steve_callahan@renolan.com
In a 1955 edition of The Economist, Cyril Parkinson
ci dt aae“ okepns oa t flh t e
o e h dg w r xad s s o i t i
n e l em
aaal fri cm li . Wh ei edd a t
vib o t o p t n
l e s eo ” i n ne s h
l t e
simple lead sentence to a humorous article, the adage
gi d le fto nr nocd y on r y 15 bo oesy,
a e ai o i w , i r b Jh Mur ’ 98 ok fs s
n f s ef e as a
Pri o’L w T e usi f rges
a n n a : h P r t Por .
ks s uo s
From humor to reality: studies were then conducted within Great
Bii sC l i O f et dt m n t cue o a i xlal
ra ’ o n l fc o e r i h ass f n n p cb
tn oa i e e e e i e
growth in overhead. The findings?
1. Officials (management) tend to add subordinates in lieu of allowing
staff to be added to "rival" organizations; and,
2. Over time, officials (management) create work for each other at a
rate of 5 to 7% more per year regardless of the amount of "real"
work being done.
Not surprising for those who work closely with organizational design
and operational efficiency.
Fsfr a t t a’eoo yw e i li a fr s o b e
atow r o o y cnm , hr n ao r oc cm i
d d s e ftn y e n
with inexplicably declining productivity to put direct pressure on
growth and profitability. These challenges bring an intense pressure on
l dr i r srfre om nehta se a otvr hl i
e e h —pe ueopr r ac t cn em l soe e n
a sp s f a m w m g
at times. Under this pressure, the unfortunate reality is that more often
than not reactive, short-term decisions get made; decisions that have long
lasting and negative impact on performance.
Yet if leadership is able to extricate itself from the distracting clamor
for action, instead taking a thoughtful look at the overall situation from
a strategic perspective, history shows that there is typically opportunity
hidden within crisis. Anecdotally, yet consistently, it has been shown that
it is in times of crisis that millionaires are made and companies rise to the
t o t ii ut o f l t bt m T eum i foa’m re ,
o fh rn sy ra t h o o . h t o o t y a t
p e d r lo e t r l d s ks
in hindsight, will be shown to have brought along similarly dramatic
opportunity for those willing to rise to the occasion.
Being strategic amidst turmoil is a bit like firefighters trying to decide
where to dig the firebreak while trees around them are aflame. It takes
an intense level of concentration, which in our industry translates into
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5. a focus on product competitiveness, distribution channel effectiveness,
operational efficiency, strategic investment levels, talent management,
and customer service.
Many companies ignore the benefit of the firebreak and instead turn
their hoses on the burning trees, typically by initiating generic cost-
cutting measures which, for most companies, translates into headcount
reductions. Reductions that are typically ordered as an across-the-board
cut; indiscriminately set at an arbitrary level so that the pain can be equally
shared across the leadership team. While this may be an emotionally
equitable approach to expense savings, it is not an effective strategy
for the forward-thinking company. Mandated percent-of-budget cuts
rarely achieve the elimination of "fat" expected, but instead end up often
detracting from longer-term necessities, reducing critical intellectual
capital, or generating a subtle deterioration in an area of competitive
advantage.
C ni r h ere r e net Pri o’ L w Wh et cs
os e t a i e r c o a n n a . i h ot
d e lr f e ks s l e -
conscious manager will attempt to maintain efficiency regardless of
f ac l od i , ees tn v wll e f l r tPri o’
i ni cnio t l aet e i i l a pe o a n n ,
n a tn h s t i lk y l y ks s
hiring as allowed and then benefiting from the work by filling their
ad i a s fst e o nti t asc t dcn i at l
dio l t f i —nt o c g h s ie el e n c a
tn a ’ m in e o a d i u
transactional productivity. During times of profit and growth, this is
acceptable but when faced with turbulent markets like we have today, the
impact of reductions is dramatic. In effect, the cost-conscious manager is
f e wtctn at lm a — i eet lailn tet awl
a d i u i c a" et n lc acp aada nt t i
c h tg u " tl u t l h l
b epni tr l e shy ae r e e pout i ee dr g
e xes eo e a —at hv pe r d rdcv y vn ui
v pc e sv it n
t t e o go t C ne e ,h Pri o’ m ngrwl hv
h i s f rwh ovr l t a n n aae i ae
e m . sy e k s s l
gradually built up an excess level of staff they can cut without impact
as their staff simply returns to prior levels of productivity without any
detrimental impact to service or effectiveness. To make matters worse,
t Pri o’m ngrsna l eho bi pa e fr io hr
h a n n aae ii l i l od e g r sd o h r e
e ks s lk i n i s
ability to weather the storm.
So how does the strategically-focused organization avoid the anomaly
o Pri o’L w epc l g e t cr neoo ii t it
f a n n a ,seil i nh ur tcnm cn a ly
ks s ay v e e s bi?
One of the quickest and most equitable methods is through the use of
demand-based capacity models that, based upon actual transaction data,
illustrate the required number of employees necessary for a given set of
functions. By accounting for transaction times along with vacations, sick
time, staff experience, and predetermined overhead factors, the capacity
models are able to objectively forecast staffing needs based on projected
fluctuations in demand. Given that the models are based upon actual
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6. transaction times, using techniques like direct observation stopwatch
s d s ri e adr t r in ro fr a i o’L w t gi a
t i o t l e ,h e s o om o Pr n n a o a
ue m d s e ks s n
fo o —t r i n ro fr up sT edm ns f r m aue
ot l h e s o om o srl . h e ad o pe esr
hd e u - d
transactions lead directly to the determination of required staffing levels,
creating the ability to trim staff-related costs in a way that will have the
least negative impact on productivity and service.
As a result, companies that have implemented demand-based capacity
models rarely resort to arbitrary across-the-board cuts; instead, they have
the ability to focus on areas where cost reduction is justified by surplus
capacity. As a result, no longer is the cost-conscious manager penalized
frfc n y aai t is f w i t Pri o’m ngrs o
o e iet m ng gh rt f h eh a n n aaeinw
fi l n e a, l e k s s
forced to identify and eliminate the non-value-added work that has filled
the available resources over time.
There are a few other exceptional benefits to having these tools at
hand; specifically, the ability to run "what-if" scenarios that help estimate:
1. the staff required to do a specific function within a unit;
2. individual performance levels compared to overall unit
performance;
3. the impact of procedural or systemic changes on staffing levels; or
4. the ability to calculate overtime and contingent staff needs for
addressing backlogs.
The steps involved in developing effective demand-based capacity
models are relatively straightforward.
1. Identify the key drivers that generate work.
2. Determine the individual work times for each driver.
3. Develop the maximum operating efficiency for the staff within the unit.
4. Calculate the volumes of work for each of the drivers being
modeled.
5. Incorporate all of the aforementioned factors, checking for
reasonableness.
Given the economic challenges we face, what better time than now
to search for the inefficiencies in your organization, recognizing the
i v ait o i l ne l ePri o’L w oe t e U i t l
n ib i fn u cs i a n n a vri . s g o s
e t ly fe k ks s m n o
like demand-based capacity models, subjectivity can be replaced by
objectivity, and arbitrariness by reason. The result, for those that take the
time, will be a healthier and more competitive organization.
Sr nt C uci sii et H w vr eu fl e t t yyu
i s n hr l a t s “ o eebatut sa g,o
Wi o hl d b : i h re
solocs nl l k t eeu s
hu cai ayo at r l.
d o l o h s t”
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