Baseline each function

Your report suggested a move on at least one of these four practices:

• which activities are done in more than one place;
• whether in-house, shared or outsourced was a decision for each support activity;
• whether the business depends on a few people below the CEO who cannot be away or replaced;
• whether cost by function is known, and whether its growth against revenue has to be justified.

This move guide counts each function's three numbers: the volume of work, the people who do it and what it costs. It marks what is done twice, what is bought and why, and what sits with one person. That is the baseline the new model is measured against.

1. When it applies

Use this move guide if your report placed any of these practices in the lowest two stages.

If all four already sit at the middle stage or higher, skip this move guide.

It needs the function map from mapping the work. The baseline is counted against it.

2. What to do

Six steps, in three to four weeks.

1. Record where each sub-function is done. In the centre, in each unit, or both.
2. Record who does it, and why. Your own people, a shared service or a supplier, with the reason for each.
3. Count its three numbers. The volume of work, the people (FTE) and the cost a year. Take them from the payroll and the ledger.
4. Mark every sub-function done in more than one place. Each is a candidate to consolidate, share or keep local.
5. Name the people the business could not run without. Write who covers each for a month, and what only they know.
6. Show cost by function as a share of revenue for three years. Make the function growing fastest say why.

Table A below holds the baseline for each level 1 function on one page.

The four free worksheets do the recording:

• /worksheets/operating-model/cost-by-function for the three numbers and the cost against revenue;
• /worksheets/operating-model/duplication for what is done in more than one place;
• /worksheets/operating-model/make-share-buy for the reason each support activity is in-house, shared or bought;
• /worksheets/operating-model/key-person-dependency for the cover plan.

3. What to produce

One table, plus the four worksheets above.

Table A. The baseline, by function

The totals must reconcile to the payroll and the ledger.

4. A worked example

Illustrative. Written for this move guide. It describes no client.

A freight forwarder runs offices in five states and a head office. Its function map has six functions and twenty-two sub-functions.

The three numbers.

• The analyst counted each sub-function from the payroll and the ledger. Customer service handled the most work, with the most people in it.

Done twice.

• Each state office ran its own customs paperwork and its own billing. Billing was marked to consolidate. Customs was kept local, because each port works differently, and the reason was written down.

Bought, and held by one person.

• Payroll was bought, and nobody inside managed the supplier. The finance manager now does. One person held every carrier rate. The rates went into the system, and a deputy was named.

On a retake, all four practices could be answered at the middle stage.

What it looked like in our work

From our own work. Figures changed.

For a consumer-health products maker, we set each function's overhead against sales, beside a comparable maker of a similar size. The business was larger in five functions, about level on the executive, and smaller in three.

The larger functions were the ones to ask why. The smaller ones were the ones to ask what the business was missing.

5. Effort and dependencies

What you need

• The function map from step 2.
• The payroll, three years of cost by cost centre, and the main supplier contracts.

How long

• Three to four weeks.

What gets in the way. We have seen these in our own work:

• Overhead that grew with sales. A consumer-health products maker's overheads grew in step with sales for several years. No function had been asked to justify its growth.
• One model, still done twice. A bank's technology division had rolled out a global operating model years before. Activities were still done in several places, and its time recording could not see the model.
• A hundred suppliers and no plan. A super fund's technology function used more than a hundred vendors. It had no sourcing strategy and no view of what each service cost.

6. How will you know it worked?

The test is whether each function's numbers reconcile and are kept up. Retake the check after the next budget. Each of these should be true when you answer:

The worked example is illustrative.

Think we've used your work without proper credit? Tell us and we'll fix it.