Silo thinking is preventing companies from using their expertise. The walls between departments must be torn down. The tight labour market means that Norwegian companies must be innovative
The extremely tough fight for labour may force private and public enterprises to pull down the walls between their departments in order to make better use of their employees’ expertise. Aker Kvaerner Offshore Partner tore down its internal silos, organised its employees in so-called flexible resource pools and adopted an extreme focus on employee development. However, an open, flexible organisation also puts new demands on managers when it comes to following up employees and developing a professional environment. Employees can 'disappear' in the organisation when the departmental boundaries are no longer there.
Silo thinking and a lack of cross-departmental cooperation within the organisation is a major drawback to any company. According to a survey conducted by the McKinsey consultancy company, most international senior managers believe that this kind of division acts as a barrier to utilising and developing the employees’ expertise in the best possible way. 51 per cent of the managers ranked silo thinking as the third most important obstacle to the good management of skilled employees. They believed their organisation was characterised by silo thinking that did not encourage constructive cooperation and the sharing of resources. This is something that may be crucial when the headhunting gets tougher (see diagram 1; download PDF opposite to view).
More than half of Norwegian companies are struggling to find qualified labour, according to Deloitte’s recent company survey. That is a sharp rise compared to last year. Seventy-eight per cent of those who do not find the right employee say this affects the company’s profitability. This means that the fight becomes even tougher: companies strengthen their recruitment work, they offer bonus and incentive schemes to attract and retain employees, and they pay higher and higher salaries in order to win the battle for expertise. However, the demographic curves indicate that companies will simply have to make do with fewer people (see diagram 2; download PDF opposite to view).
Nor is more labour immigration the solution. In the EEA countries, the demographic curves are even worse and the headhunting will become even more intense. As a result, companies must utilise the human resources they have in a better way. They must be innovative.
“Companies have to look at their real need for new staff instead of focusing a lot on recruitment. Perhaps a company can get more out of the labour it already has by reorganising,” says project manager Nicolay Worren of PA Consulting. One solution may be to tear down the walls between departments and organise employees in resource pools. Instead of people belonging to one department, the resource pool can hire people out to different projects. “That way, the company can more easily link the right employee to the right project,” says Worren. He believes other industries have a lot to learn from the oil and consultancy industries in this area.
Worren is backed up by senior researcher Arne Carlsen at Sintef. Carlsen says that flexible, open forms of organisation will increasingly be a key answer to the lack of competent labour. One way of achieving this is to shift from traditional departments to a resource pool. This trend is on its way into manufacturing companies, public enterprises and service companies. However, Carlsen underlines that there is no standard best way of organising operations.
Mandag Morgen’s analysis shows that organising employees flexibly provides many opportunities, as well as several challenges.
- Tear down the walls: An open organisation may provide a better overview and utilisation of the employee’s expertise
- Invisible employees: It is important to follow up employees closely when departmental boundaries disappear
- External networks: The need for more staff forces companies to diminish their boundaries with the outside world and build external networks with other suppliers.
Tear down the walls
In 2004, Aker Kvaerner Offshore Partner started to demolish its internal silos. It pulled down the walls between the former departments and organised its employees in a common resource pool, or 'process' as the company calls it. According to a summary prepared by Siv Grethe Hansen, the head of the company’s employee development and resource management area, three years later, this has resulted in a better overview and utilisation of the employees’ expertise.
“Such a solution means that the company can make better use of its employees’ expertise. But this mindset requires Norwegian companies to change their way of thinking,” says Worren of PA Consulting. Because despite all the talk about network organisation and project work, most companies are still organised in departments. “Why is it that while buildings belong to the company, employees ‘belong’ to the various departmental heads and not the company?” asks Worren.
Carlsen at Sintef points out that the problem with departments that are financially self-sufficient is that they can become a barrier to the flexibility that companies need when they have to bring in staff from several departments to man projects. Departments can become too concerned about what is best for the department instead of the organisation’s needs.
In a new report, McKinsey claims it is a problem that many companies devote too little attention to effectively distributing their internal employee resources.
In Aker Kvaerner Offshore Partner, reorganisation was part of a major improvement project in the company. Now all the employees belong to a common area called Employee Development and Resource Management (M&RS). In addition, the company has established a unit that is responsible for professional development. This unit has no human resource responsibilities but is to quality assure all courses and expertise development work. The goal is to achieve a more process-oriented organisation.
“Now the different projects can relate to one place – not 15 departments,” says Siv Grethe Hansen, the head of Employee Development and Resource Management at Aker Kvaerner Offshore Partner’s Stavanger office. When projects need people, they report their need to one location in the company. Thereafter, the project and Employee Development and Resource Management decide who is the right person for just this project. “It’s easier to think about the overall picture, and this allows us to better plan the company’s total need for staff,” says Hansen. In this way, the company avoids the various departments’ needs becoming more important than those of the company. This form of organisation has given Aker Kvaerner Offshore Partner a better overview. It is easier to see what is needed. Expertise is utilised across departmental boundaries. Various people are selected for projects without any consideration being paid to departmental boundaries. “In this way, we make better use of our expertise,” says Hansen in Aker Kvaerner Offshore Partner. The departmental boundaries no longer cast a shadow over the company’s expertise. According to McKinsey, many companies are struggling with an organisational form that makes it difficult to obtain an overview of the company’s expertise. “Many frustrated managers have unsuccessfully searched for the right person for a special job, knowing full well that he or she is working somewhere or other in the company,” states the McKinsey report. “It’s difficult for companies to utilise the expertise they have if they don’t know what expertise they have,” says Worren of PA Consulting.
Invisible employees
In a flexible resource pool, some employees may feel that they 'disappear'. Although the employee may become visible to the rest of the organisation, she may experience that she is not seen over time. That she is deprived of her working environment, stability and sense of predictability.
“The human resources manager function can quickly disappear in such flat structures. It’s important to ensure long-term follow-up of each employee when departmental boundaries are removed,” says Carlsen of Sintef. At Aker Kvaerner Offshore Partner, this problem arose after the reorganisation. They had too few human resources managers per employee. “We adjusted this and employed more human resources managers in order to strengthen our employee follow-up,” says Hansen. Employee follow-up was one of the reasons for the reorganisation work. While the departmental heads used to be responsible for several things, their main task now is employee development.
The professional development in the company is also a major challenge when the walls are torn down. Important in-depth knowledge may be lost. The need for specialised professional environments and in-depth knowledge is one of the reasons for resource pools not being adopted by hospitals, while some nursing homes have introduced this model. “Nursing homes have many unskilled employees and few skilled ones, and the use of resource pools has enabled nursing homes to allocate nurses where the need is greatest. These function more or less as advisors to the unskilled carers,” says Per Kristian Vareide of Deloitte, who has spent a lot of time examining the national health sector. In hospitals, on the other hand, the trend is towards less care, and patients are discharged as soon as they are ready for this. “There is therefore a greater need for professional knowledge, and in order to cultivate this specialist expertise hospitals are more dependent on purely specialist departments,” says Vareide, adding that some hospitals have established resource pools. However, when they do their goal is to reduce the number of temporary and extra staff so that they can better utilise their expertise. This has also been positive for people who have had part-time jobs but wanted to work more.
Aker Kvaerner Offshore Partner deliberately focuses on professional development. Human resources managers have the same background as the employees for whom they are responsible, they are not traditional HR people. Engineers manage engineers. “The human resources managers have a lot of experience of working in our projects, so that they ‘know what it is all about’,” says Hansen.
Rotation is also something Carlsen in Sintef points out as an important success factor. “Many companies have introduced extensive rotation schemes. When people rotate between different functions, they gain experience from various parts of the company,” he says. However, he points out that the goal of rotation may conflict with the goal of understanding the professional field and market, which requires greater stability. “Companies must find the right balance here,” he says.
Tear down the walls separating the company from the rest of the world
In addition to lowering their internal boundaries, companies can also tear down the walls surrounding them. “The need for more staff means that companies must have greater flexibility in both their internal and external resource pools. With a resource pool, the company can make more efficient use of both internal and external expertise,” says Carlsen. Many companies outsource entire functions, resulting in greater flexibility. The film industry and international firms of architects are examples of such a way of thinking. Film companies bring in people for each project. First they get the project financed and then they man it.
“The company’s task is then to specify and configure the project so it is what the customers want and then to buy services from external suppliers,” says Carlsen. But there is a great danger in outsourcing too many specialist functions. The company may lose the specialist expertise it needs to be able to sew together a project with different suppliers. The ability to ‘sew together’ is crucial. “If the project is to succeed, it’s important to mobilise quickly. The company has to sew together new projects, mobilise and bring in new people quickly. Research has shown that a lot depends on the initial phase. This is when the terms are set for the rest of the project,” he says.
The problem with external networks is that each new project starts up with new people who are not used to working together. If everyone is completely new to the project, things can be difficult. This is why more and more companies are establishing more or less permanent project alliances where patterns of cooperation between individuals can be maintained. Alliances are gaining ground both in Norway and abroad. In this way, companies are trying to benefit from people and teams that work well together. Even if they are not formally organised, the goal is to copy collaborations that have been especially successful.
Sintef researcher Carlsen points out good Hollywood productions as an example of how attempts have been made to recreate the same constellations of director, producer and others from film project to film project. This way of thinking can also be seen in the construction industry. Here, it may be the same contractor, architect and a number of other parties who collaborate from project to project. “When it first works, the constellation will be used in new projects,” says Carlsen. Even if the relationship cannot be recreated 100 per cent, companies achieve something if they manage 70 per cent. The key words are relationship expertise, ie, each person’s knowledge of and familiarity with the others in the project.
“Look at former Rosenborg (Norwegian football team) players. Most of them have not done very well outside Rosenborg until some time after they left the team. They have not accrued the necessary relationship expertise,” says Carlsen. Research indicates that many companies with high innovation requirements experience similar problems when recruiting seniors.
“The senior’s strength may be very much linked to her former network and patterns of cooperation. This may make it difficult to recruit her to new jobs. A lot of the basis for that which was extraordinarily good may be lost,” he says.
“It’s difficult for companies to utilise the expertise they have if they don’t know what expertise they have,” says Nicolay Worren of PA Consulting.
Salary and recruitment
Salary and recruitment measures have been important weapons in the companies’ fight for qualified labour. Between 2001 and 2005, the average monthly salary increased by 18 per cent. In 2005, the average monthly salary increased by 3 per cent. At the same time, recruitment companies experienced strong growth. For example, recruitment company Mercuri Urval increased by more than 50 per cent in 2005 compared to the previous year. The minus figures in the 2003 bottom line changed into sound profits in the space of two years. Source: PA Consulting, Dagens Næringsliv
Reorganisation of Aker Kvaerner Offshore Partner
Aker Kvaerner Offshore Partner is a supplier in the field of modifications and maintenance of installations in the North Sea and oil and gas facilities on land. The company employs 4,500 people, including hired consultants. Its head office is in Stavanger. The company is a wholly owned subsidiary of Aker Kvaerner and has one of the largest engineering environments in Norway. Of 2,400 permanent employees, around 65 per cent are engineers/graduate engineers. Aker Kvaerner Offshore Partner achieved revenues of approx. NOK 4.3 billion in 2006.
After the company reorganised in 2004, Employee Development and Resource Management has the formal human resource responsibility for all the employees working on projects. The head of Employee Development and Resource Management in Stavanger has a team of 10 human resources managers each of whom follows up 80-100 employees. The formal human resources responsibility includes tasks related to the employment relationship – salaries, following up sickness absences and general personnel follow-up. In addition, this function is responsible for the expertise and recruitment strategy, career development, the development of talent and managers, training needs and the implementation of Aker Kvaerner’s various employee development tools. The company has established its own school for internal training and development.
