A few days ago, I was having breakfast with the owner of a very successful family-owned global Pharmaceutical company. We were exchanging views as to how the Biopharmaceutical business environment is changing and the challenges ahead and he said something, in my opinion, very true: “large Pharmaceutical companies typically have far too many people and there is a lot of inefficiency around”.
Of course, it doesn’t happen everywhere but, in my opinion, it is quite frequent on SG&A functions where the output is sometimes difficult to measure and you need to rely on ratios or detailed activities performed. Every manager on a peak of business or emergency always finds a compelling reason to hire someone more junior to support. This carries infrastructure cost around the hire, which stays after the event, and ends up generating these funny organizational structures where the span of control is two or three people with someone also reporting to each one of those; crazy.
As it happens with the tail of unprofitable stock keeping units at a manufacturing plant, at the request from the commercial teams, there is always good reason to add resources and almost impossible to sunset products or reduce the number of people in the teams. Laying off people is also unpopular and controversial and is always desired and nicer to take a stance, where you support the view that companies should take responsibility for their employees and similarly to what you do with your own children you need to help them progress as opposed to asking them to leave.
Simon Sinek is well recognized for taking this approach claiming that otherwise you hurt the culture and the circle of trust. I disagree, to a certain extent, with this view. I believe you hurt the culture by not being competitive, by not playing the infinite game, by ensuring long-term results and survival, by tolerating low performance for too long or by having far too many people around that are not really needed hitting the bottom line and making the company less competitive and weaker. All of this, as we have seen many times, ends up leading to massive and painful restructuring efforts or acquisitions down the line.
Sometimes hurting the culture is not a bad thing. Preserving the culture, assumes that the existent culture is “the desired culture”; typically, a culture of high performance, as the cliché goes. A company is not a family and the analogy with children is patronizing. In fact, if you ask yourself what the company is, you will realize that it is just a group of people at one moment of time hopefully focusing on the same vision. People come and go. Sometimes, the whole leadership team moves away and a completely new team comes in. Companies are just social constructs.
There is no point in taking a protectionist, patronizing approach to people. Many times people could be supported through coaching, mentoring, education or putting their competences into use in the right missions; this must be tried first. However, in my opinion, companies usually procrastinate with the size of teams they have in place. As mentioned, in most cases there’s too many people in SG&A, although you also see this on client-facing teams, where in many cases the gross profit and ebitda generated does not even cover for the fully loaded labor cost of the person. This is unsustainable in the long-run.
Leading is always a choice. Ensuring you are doing the best for your people, your clients and society is what you need to be focused upon. These demands running a business that has a clear purpose, vision, mission and strategy but also requires to have a healthy organization in place to implement the strategy and thrive in the long run. The same happens with sailboats, sometimes putting in a reef to your sail allows you to improve a couple of knots avoiding the whole mast to collapse.