©Karl Erik Sveiby 1997, 2001
The main activity of employees who work in general management administration, accounting, personnel, reception, filing, etc. is to maintain the internal structure. They are referred to here as "support staff". Activities like routine maintenance of computer systems and databases should also be classed under this head, unless they refer to a specific customer or group of customers.
Investments in new subsidiaries or new methods and systems are examples of cash outlays that are often accounted as costs. Such investments are indications of a build up of the internal structure and should be monitored and presented on a yearly basis. The indicator can be calculated as a proportion of sales or (better) a percentage of value added. (See example Celemi).
Investment in information technology influences the internal structure. In many industries it is also regarded as a measure of progress in accomplishing the corporate mission. An insurance company with more advanced IT systems can solve its customers" problems more efficiently. An airline with a sophisticated ticket booking system may enjoy a competitive advantage over other airlines. Companies with systems for information retrieval and distribution have a powerful structure that supports the organization. Thus IT investments, expressed as percentages of turnover or in absolute figures, can provide valuable clues to how the internal structure is developing. The number of computers and/or other IT packages per person can also be used as a control figure.
The proportion of assignments devoted to customers that improve the internal structure of the company is an important variable, because it adds to the growth of the asset. Examples of projects that improve the internal structure are large projects where competence is passed on by tradition to several professionals at once. Innovative projects involving new materials, new methods of calculation, new software, etc. come under the heading of R&D and should be classed as such. Customers must be classified for this indicator. Two companies that do this kind of classification are PLS Consult and Celemi.
The proportion of sales from new products/services is one of the most common indicators in high-tech industries. Often cited is proportion of sales from products younger than 3 years. Note that the indicators is placed under "Internal Structure" innovation because the processes for developing products and services are parts of the internal structure, so the indicator tells how good the organisation is at innovation.
An way of capturing "everyday" innovation in the workplace is to calculate and publish the number of new processes implemented regardless of how "grand" they are. It is a simple, yet effective way to encourage continuos improvement.
Proportion of support staff of the total number of employed indicates efficiency of the internal structure. A change in the proportion indicates whether the efficiency is improving or not. The inverse of this ratio is the proportion of professionals. Example see WM-data.
Sales per Support Person Sales per person employed in can be used as an indicator of how large volume the organization´s internal structure can cope with. A change in the proportion indicates whether the efficiency is improving or not. Example see WM-data and Celemi.
Value judgements are a component of competence. One type of value judgement that is useful to know about is the attitude to workplace, customers and superiors. This is a concept often referred to as corporate culture or esprit de corps. Just as you can measure the attitude of the market to the company, you can get a picture of employees" attitudes to their place of work. If those attitudes are favorable, they contribute consciously or unconsciously to enhancing the company´s image among its customers. But if the employees take a dim view of the company, this attitude will unconsciously rub off on customers and can nullify the arguments in the most elaborate advertising campaign.
How much of marketing costs are neutralized by your company´s own staff? Many companies, especially big ones, run regular polls to detect changes in employees" attitudes. The results of such polls are an indication of how the internal structure is developing. The results from attitude polls should be summarized in a few indices, which are then followed up on a yearly basis. It is imperative that the statistical methods used are consistent form one year to another, because we a re more interested in the change, than in the absolute level.
The indicator is placed in the Risk/Stability cell because a deteriorating attitude measures are early warning signals for organisational trouble ahead.
An old organization is generally more stable than a new one. Signs like "Est. 1887" are often used by retailers to indicate to foreigners that the shop can be trusted. The age is easy to compare with competitors.
The support staff and managers are the backbone of the internal structure. It is vital for the survival and efficiency that they function well and a low turnover rate indicates this. The turnover should be kept in a band, just like the turnover rate for professionals. Because the objective of support staff is to maintain the internal structure a lower turnover than for professionals is preferable. The band is probably between 3 - 7%. Example of staff turnover chart see WM-data.
Rookie Ratio is defined as number of people with less than 2 years employment. Recently employed people are less stable than old. They are also less efficient, because they have not yet socialized into the tradition of the organization, so they do not know the most efficient way around. There is usually a higher personnel turnover among people with less than two years of seniority in organizations. A high percentage of "rookies" in the administration is therefore a sign that the organization is less stable and less efficient. Rookie Ratio and seniority are each other´s complements. Both indicators can be used. Examples see WM-data and Celemi.