Since the word Agile became probably the most common buzzword of these days, not surprisingly, every organization has at least one ongoing agile initiative. I have visited recently a branch of a multinational company, that is, in the same way, undergoing such transformation.
“We are a bit special here, so we can’t use all that what agile offers, but we are using Scrum and Kanban already,” says the operational manager in his introduction. After a small discussion, I have asked him, what are the main problems I could help with. “You know, we currently struggle to meet one of the important KPI, which is the cost-per-head. We struggle with the recruitment of university students. In the last semester, we were a bit lucky. We have got some 50 of them so we can replace 50 senior engineers.” My face seemingly turned into a terrible grimace because the manager started explaining. “We provide development and support for multiple systems in various stages of their product lifetime. Typically our engineers specialize in one. They stay with it for years and getting maturity. Hand in hand with maturity raises their salaries, too. At some point, we do not need so many mature engineers with high pay for the system. We can’t move them onto another system because they are unproductive there. They need some time to learn it while getting the salary of an expert. Many of them are not able to learn new technologies, too.” In other words, they fire the people in their mid-fifties and replace them with juniors from the university to reduce costs, I added for myself.
Replacing seniors seems to be quite omnipresent practice now. It produces many issues for the organization, where some are not very visible on the first run. Others are long-term and may harm the bottom line, various stakeholders in the organization, including its shareholders.
Managing by an Excel Sheet
It is tempting for many managers to run an organization by excel sheets. It is easy — the side has to give, the side gave — the difference is the profit or loss. This is how the cost-cutters see the organization. Everything is one-dimensional. I call such management mode managing by an excel sheet. They are missing entirely, that organization is a community of people firsthand, a living organism. And that they are serving the interest of multiple stakeholders, not just one. In a high-performing organization, the collaboration of all stakeholders is critical for success. So their interests must be taken into account, too.
Managing by excel sheets delivers many drawbacks. In most cases, the sum of the long-term damage is higher than the apparent short-term gain. The risky is that its view does not provide the entire picture. Spotting an anomaly is one thing, a countermeasure is another. For the holistic picture, the data needs interpretation and understanding of the context.
So what is the problem?
Let’s look at the problem in my story from different perspectives of agile and traditional organizations. My story illustrates many managerial failures. Simply there is so much of what went wrong.
The Agile organization creates value differently than the traditional one. It is very difficult to compete in the era of knowledge and creative economies without knowledge. Knowledge and creativity are the principal vehicles of progressing for success. That is why my jaws dropped to the floor to learn that most experienced people are systematically being fired. The knowledge and its management create one of the four pillars of Agile. The game is how to attract the best talent. And also how to create an environment where it can shine. And best talent goes to the best people.
I was also surprised that nobody in the company has ever questioned the KPI. Sure, I was asking for the reasons. But why is it so important to keep cost-per-head low? How does the cost relate to the design of the service? How is the business constructed? And how are the steps in the value chain aligned together? I have got no answer.
Most of the laymen may be surprised by my thinking here. In my early lessons of the Economy, we learned that we could achieve profit only by managing the two parameters. Increasing revenue (which is often market-driven, and we do not have control around it). And reducing costs (which we can easily calculate and reduced). The problem with this later one is that there are more types of costs. There are bad costs, those that result from inefficiencies. And there are good costs, which directly translate into the revenue. It is sometimes not easily recognizable one from another, but it does not mean we shouldn’t try.
The human aspect of the change
To get the most out of the people, they have to be engaged and motivated (another Agile pillar, probably the most important) and empowered to do the job. We invest heavily in education. That is why highly skilled people are the most important asset.
Do those mature engineers underperform due to any internal reason? Apparently no. There is the only false belief they are unproductive. Technology development is not only about mastering a particular tool or delivering a certain amount of men-days of coding. It is also about having a broad range of skills. It is indeed unlikely that all of these would become obsolete overnight. The market shift caused some skills to become obsolete, true. But it was avoidable by proactive retraining.
Building knowledge-based organization is an investment, and investment must be protected. What is the strategy of the managers, broad organization and individual people to protect such an investment? How is the work and training organized that skills of some people get so outdated that they have to be fired? And is this skillset a true reason?
When managers prepare operational plans and scenarios for the next period, they are supposed to use data. Such data comes from sales or other parts of the organization. I demand to find in such a plan the expected capacity, structure of the delivery accompanied by the related headcount. I want to see the required skillsets and their economic justification. Such plans are prepared at least once per year. In my consulting experience, I have to admit I rarely see such plans. The most common reason for this in SMEs is that people in managerial positions just do not know this is necessary.
I know it is tempting to fire mature people. But what does it say about company culture? What does it communicate to the young people in the company? Or simply to anyone who was luckier and did not get fired. Will they still remain engaged and motivated? There are numerous studies about the impact of layoff on the rest of the organization. They discuss how to minimize negative impact, too. They all, however, consider the crisis, such as unexpected loss of the market. I am not aware of any that deals with systemic firing.
The company culture aspect of the change
To differentiate from the past, HR departments came with new labels for the people. We call them talent now or co-workers because the word human resource is bad. They do it to pretend they suddenly care about the people. People are now important. Out of a sudden, the action of the excel sheet manager reveals. What does it say about the organization? There is no better confirmation that regardless of the label, the people are still just resources. Individual contribution does not matter. And when it does not matter, people lose their engagement and also their appetite for achieving something. They will either go elsewhere if they still have some ambitions. Or start treating their work as a transaction, focusing on the labor code, delivering barely minimum for not getting fired, counting salary for hours spent, politicking, and holding power. No loyalty, no deeper interest, nothing. When engagement is out, motivation shortly follows.
Engagement and motivation are part of the company culture. It is the role of the senior management to permanently take care of it, communicate it, and nurture it. People perform the best when they feel valued. And when they feel important. And finally, Agile Organizations do not value hire and fire culture.
The social aspect of the change
The most organization tends to hire young people. It results in situations where people around their fifties and above are having difficulties finding any job. As the age increases, the chances are deteriorating. What is the good on the situation if we fire the people at around 55? We interrupt their career, and they fall financially. Particularly in a time when their income level starts counting for their pension. So their life quality will be affected till the end of days. Are they potentially underperforming? Most probably no. There are only outdated customs and stereotypes. That is why laws about anti-age discrimination are introduced.
Companies spend a lot of money on marketing, image, and brand. How they treat the people is their direct reference. Good and bad company is not always about P&L statement. It is about how people speak about the company when they are with their friends drinking beer.
The financial aspect of the change
While salaries and remunerations are usually the highest expense of the organization, it is often associated costs that contribute to it. The cost of recruitment in the era of shortage of people is also very high. Unlike the remuneration, the recruitment expense we can reduce significantly.
There are other more clever strategies available for fair remuneration for value delivery. We can design models that reduce unwanted fluctuation, thus reducing recruitment costs. We can remunerate the value creation. We can push people for innovations and improvements, encourage new knowledge acquisition, or support future collaboration when people are already out of the organization. Naturally, people are not performing equally. But we can compensate for this with participating schemas.
The managerial aspect of the change
The purpose of the management in the organization is to balance the stakeholder’s interests. It can be through creating an environment that enables creating value. What is the quality of working with people when their knowledge becomes suddenly obsolete to the level, that they need to be made redundant? How is the personal development and training organized? How does the organization work with its plans and scenarios related to knowledge acquisition and development? How is the planning of the skill development organized? In a good organization, the people will get information about changes on the market, about the decline in demand, or about different opportunities to focus the attention in time. Acquiring new skills needs some time. The purpose of annual performance evaluation serves exactly for this, however, I believe the interval should be shorter.
Human Resource department aspect of the change
In many organizations HR department takes on themselves taking care of the company culture. When and how did they intervene when such a miserable policy is introduced? What alternatives did they offer to managers? What was the action when they start witnessing people are being dropped away for artificial reasons? What is the impact on the other people in the organization? Some metrics? In my consulting experience, I have met only very few HR people who are capable of this broad thinking and who could be a partner for managers in designing business policies.
For the sustainable capability of attracting good talent, it is important to have a reputation on the market. And reputation can’t be imposed. Reputation can only be earned. It does not matter how much money the organization invests into the advertisement. If there will be negative scandals in the media or rumors about internal mismanagement that is causing harm, it increases difficulties with hiring. Good company is usually the one about which the people speak.
Is there any way out?
Most painful on this story is that whatever crippled requirement appears, some people are always willing to implement it. It occasionally challenges personal integrity, too. I doubt they do not see it causes harm.
I have good news. Managers can revert the situation in which they found themselves. It will take some time, and there will be some moderate cost involved, too. The result will pay off. I suggest starting with an understanding of the value chain and purpose of the organization. Focus in particular on changing trends in the different stages of the chain. Use discoveries for developing allocations plans. Then we can highlight new skillset needs, invite people to choose and adjust their development plans and help with designing optimal reskilling activities. It is the quality of the management that can make the difference!
What is your experience with your company? How do you treat your senior people?
- Michal Vallo, Agile Transformation — Definition of Business and Enterprise Agile, 2019, LinkedIn article.
- Michal Vallo, Agile Organization does not value hire & fire culture, 2019, Medium article.
About the author: Michal Vallo builds agile organizations and helps managers to understand agile techniques, benefit from their adoption and consequently radically improve organizational performance. He is an agile trainer, coach, and manager at Aguarra. He is also a founding member of the Agilia community and an organizer and curator of the Agilia Conference / Agile Management Congress. Feel free to contact him if you need help with your HR department or agilization of your organization.