Big Red Car here. Hey, the Big Red Car is very, very sad. Everyone is gone. I’m stuck with the housesitter and it’s too damn cold to take a ride. Usually I can talk the housesitter into anything — yes, ANYTHING — but it’s 40F and he’s not budging from the fire. Brat.
I wonder if I’m suffering from post holiday depression. I think there is such a thing, no? Well at least it’s going to be 70F by the weekend. I can wait on it.
So The Boss is talking to one of his favorite brilliant young CEOs who has been wrestling with growth issues. Big growth issues. The Boss gives him a few tips.
Growth is a good thing but it brings its own unique set of problems, no? Oh, yes.
How would you detect or divine growth — or the need for growth — in your operation? It could be more customers, more revenue, an overwhelming abundance of unaccomplished objectives. You will know it when it visits you. Yes, you will.
Remember when we were touting Vision, Mission, Strategy, Tactics, Objectives, Value and Culture as the building blocks of your enterprise? We talked about that here: Vision, Mission And All That Jazz.
Part of that discussion was about Strategy, Tactics, Objectives — the view of 30,000 feet, the boots on the ground view, the actual list of tasks to be accomplished. We talked about that here: Strategy v Tactics v Objectives
When the unaccomplished objectives begin to pile up — this is the canary in the mineshaft telling you that you need to add some bayonet strength to the organization chart to whip this pile of objectives into submission —you will need to take some action.
This is a very mechanical approach — when you are constantly saying:
“Who has the bandwidth to get this done?”
then you need some more folks. Your Spider Sense will be tingling well before that. But listen to your Spider Sense and the canary. Start to think about growth.
The Organization Chart is a living document
The Boss advised the brilliant CEO that there was a way to make the organization chart a living document which would allow you to manage growth. [You do have an up to date functional and position organization chart, right, Old Sport? If not, make one. Now. STFU, Big Red Car, it’s not your job to be ordering people around. Mind yourself.]
Once you have your org chart in perfect condition, add the cost of each position. Include the salary, benefits, short term compensation, long term compensation and any special costs. Wow, those folks are very expensive, no?
In the future, you will not look at that org chart without dollar weighting each and every existing and future position.
You should then make a spread sheet and chart which shows the cost of personnel as a percentage of revenue in total and by department. Keep this graph updated on a monthly basis. As you grow these ratios will become extremely illuminating. As an example, as a company grows the cost of its upper management as a percentage of total revenue will decline. You may want to keep marketing expenses constant particularly when you can see a multiplier impact of each incremental marketing person or expense.
These three tools:
1. Dollar weighted organization chart;
2. Spreadsheet showing costs by function; and,
3. Charts showing total cost and functional cost as a percentage of revenue.
will provide an incredible and orderly insight into how the organization is growing both in headcount and cost. This will assist you in making decisions in real time and in the future.
Modeling and managing growth
With these tools in hand and some idea of your future business prospects, you can anticipate the cost of your overhead and the magnitude of personnel growth.
If you project a growing revenue, then you will likely have to add people in those functional areas which similarly grow linearly.
You will have areas of the company which do not necessarily grow with revenue or traffic. If you have a robust functional area of folks working on the website as an example, you may be able to grow substantially without having to add any people. Don’t be fooled into thinking that everything grows linearly. In addition, you may decide to outsource some functional area when it reaches a critical mass in which outsourcing would also be a cost savings.
You can effectively forecast future requirements easily using the same technique. Layout those areas which will require more people. Estimate their costs. Compare them to future revenues to see if the ratios are still sound.
This is also a useful tool when you decide to upgrade the quality of your people. You can slip in the new cost structure — those “A” performers may be substantially more costly to employ — and predict the new costs.
You can also make subordinate ledgers and org charts and let functional or department heads manage and forecast their costs. You can provide them with annual budgets and let them manage their own areas. The possibilities are limitless.