This article in the ‘cost take out’ series focuses on the relevance of optimising overhead departments. Despite the huge potential, few organisations are fully aware of the possibilities to improve the efficiency and effectivity of teams that are working on activities not directly attributed to a product or service – the so called ‘overhead departments’. Companies must consider the efficiency of overhead activities on a regular basis to keep up with the market.
By Head of Consulting Benelux, Robert Voogt, Senior Managing Consultant, Ewart van der Steege, and Senior Consultant, Mohammed Mokhtari.
Financial institutions have adopted many organisational changes to remain profitable and agile in the last few years. These changes have been prompted by rapidly changing market conditions such as digitisation, regulation, and new working methods. Organisations have developed cost-saving methods such as product rationalisation; harmonisation; lean working; and robotisation.
These changes have focused mainly on primary processes — those that relate directly to a product or service. This is despite indirect processes, usually referred to as overheads, increasing in size and importance compared to primary businesses. The result is that cost savings in overheads have been significantly underexploited.
Why optimising overhead departments?
1. Lopsided growth
Overhead departments have tended to expand faster than primary functions because of increased compliance, risk management and employment requirements on companies. The result is that overheads have often grown into large, expensive and bureaucratic departments. Deeper analysis of their processes and services often reveals multiple potential cost savings. To start identifying these savings, we must ask which teams, services, and products add value and how they contribute to the organisation’s strategy?
2. Pull instead of push strategy
Overhead departments are often experts and monopolists, for example, in risk and compliance. As an internal monopoly, they often push their services on other departments, when a pull approach that draws interest to them could fit their service level better.
Overhead departments tend to assess for themselves what knowledge and skills the business needs from them. Often, they set the level at which they service primary departments very high. So HR, for example, often offers very high-level support to managers who would be willing to accept more self-service. Consider instead, how often the business would ask for that expertise based on a specific need. Also, would it be more efficient if the company involved experts from those departments during a process instead of asking for input and approval afterwards? It is important not to force changes on internal clients but to decide expected deliverables together.
3. Small span of control
Primary functions tend to have many people with different skills and expertise working together. Overhead departments are often more concentrated, centralised and relatively small, resulting in a low span of employees per manager, which is less cost-effective. Could they be managed and organised differently? Although not all choices regarding way of working in primary departments (e.g. scaled agile organisations) will work for overhead departments, they can learn a lot from the way primary activities are organised and governed.
4. Lack of digitisation
Digitisation and new technologies have helped organisations optimise and streamline their processes. But they tend to explore digital possibilities more in primary processes, focusing on the interaction with the external client. Overhead departments deliver services and products to the internal client. So why not explore in more detail how digitisation can improve overhead efficiency while maintaining high-quality standards?
Let’s conclude by looking at the example of a large corporation that is struggling with big and inefficient overhead departments. Its solution could be to combine the concepts in this article in a total redesign of the company’s collaboration model, and products and services portfolio. This could dramatically improve performance and quality in their overhead departments, and reduce costs by analysing overall expenditure in a multi-method approach.
In the next article on cost saving in overhead departments we will further elaborate on the how by explaining more about Delta Capita’s plan of approach.
Delta Capita has years of experience in helping companies improve and optimise their overhead departments. To find out more, please get in touch with Robert Voogt, Ewart van der Steege or Mohammed Mokhtari.
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