Prepare Three Envelopes
A new CEO was moving into his new office, and his predecessor was also there, clearing out his things. The old CEO said to the new CEO, “I learned a lot in my role here, and I want to pass on some of my experience to you so you can be successful. Over the course of time, you will come across difficult times and challenges. I have left three envelopes for you. Open one when a crisis hits, and follow the advice inside.”
The new CEO was very grateful for this advice, and appreciative of the old CEO’s graciousness and magnanimity.
Things went well at first. The stock price gradually rose, sales were up, and employees seemed happy. But by about 18 months into the role, the stock price had slipped about 15%, sales were down, and the board was getting restless. The CEO realized that a crisis was upon him, so he opened the first envelope. In it was a piece of paper with a single word, “REORGANIZE.” The CEO reorganized the company. Much to his surprise, the effects were dramatic and almost immediate. The stock price shot up, sales quickly recovered, and Wall Street raved about the CEO’s brilliance.
Another 24 months passed, and the stock price had plunged almost 20%, sales were down, and publicity about the CEO was quite unflattering. He opened the second envelope: “LAYOFFS”. The CEO eagerly went about following this advice. He instituted major cuts across the board. The stock price rebounded and once again, he was heralded as a genius.
18 more months passed, and the pattern repeated itself once more: the stock price had declined significantly, sales were in a slump, employees were unhappy, and the board was impatient. He thought to himself, “No problem, I still have one envelope left.” He opened it and read three words, “PREPARE THREE ENVELOPES”.
This story, while fictional in theory, is a shining example of what happens in real life. CEOs and boards follow the same patterns over and over again, with the same predictable and repeatable results. Instituting layoffs may yield temporary relief, but it does nothing to fundamentally alter the underlying issues. It is merely addressing the symptoms, while the disease goes uncured.
The need is to permanently reduce costs, and this is done by making structural changes to the organization. This is accomplished not by changing the organization itself, but by reallocating the skill sets of the employees and distributing them to where they will have the most significant impact: the business.
As an example, a typical IT department of 300 or so people may have up to 50 different skill sets, ranging from SQL, to database administration, to server management, to various kinds of programming skills. Many of the skills are mutually exclusive. The DBA will not know how to program applications, and a Java developer typically won’t know .NET and vice versa. This leads to hiring employees for a specific, individual skill. And, more critically, the skill is not typically transferable. i.e. others in the department can’t easily learn the skill from this individual, and people in the business certainly can’t learn it. The skill is locked inside an individual, and that person is locked in IT.
The solution is to adapt technology that is easily learned by a broad range of people throughout the company, to essentially “homogenize” the skill sets. Rather than a few people each having unique skills, many people have the same skills, but they are spread throughout the company in every business area.
At a former employer, we adopted Salesforce as our core platform. The intent was to put virtually everything on this platform. The only exceptions were HR and corporate Financials. But everything else - sales, marketing, policy administration, product design, rating, actuarial, billing, payments, claims, contact center, reinsurance, and even legal - went onto the platform. By using a single platform, the net result was to reduce the number of IT skill sets from 50 to about 10, with Salesforce (admin configuration and APEX development) becoming the dominant skills throughout the company. Salesforce admin was pushed into the business areas, while most development remained within IT.
By reducing the number of needed skills within IT and pushing a key skill into the business area, we were able to reduce our IT staff from 300 to 140 over the course of time and empower the business to be faster and more customer-centric. The business did not need to increase the number of people – it only had to teach them Salesforce admin and configuration.
In one example of the success this approach produced, a single Salesforce admin in the claims department built a customer community for a client. She built it under two months, with no help from IT, at zero cost. Had IT been required to built it, it would have cost upwards of $350,000, not to mention being prioritized against other projects. This approach was so successful that Salesforce even wrote a blog about it: https://www.salesforce.com/blog/2017/07/how-two-admins-saved-company-money.html?d=70130000000tP4L
Don’t prepare three envelopes – prepare a company-wide education plan instead.
Note: I want to thank my father, the best role model anyone could ever have, for the joke about the three envelopes. He told me this joke many years ago, and at the time I thought it was marginally funny. Today, I realize how incredibly prescient it actually was. Happy Father’s Day!