How Much Does Incompetence Cost Your Organisation?
Why?
If you or your team regularly find yourself debating the merits of Learning & Development within your organisation to secure funding for L&D initiatives, find it's an uphill battle if not rejected outright, then it's likely you didn't frame the problem and solution in a way that demonstrated measurable value add in terms of time and money. However, with some simple mathematics we can determine the effects and scale of incompetence on your organisation. The resulting numbers can be leveraged to prove how effective L&D can be when aligned to solving specific business problems and their hinderance to delivering specific business outcomes.
What?
To better understand this we will quantify the relationship between individual and organisational incompetence and competence, what this infers for individual and organisational performance and how to address the predictable imbalance efficiently and effectively through a well executed Learning & Development strategy.
How?
We will measure the effects of incompetence in three theoretical scenarios; Merger & Acquisition, Sales Team and Helpdesk. We will also measure the effects of a well executed low cost Learning & Development strategy that directly affected business growth in a tech company from one of my previous projects. To do this we will answer 3 key questions:
What is the scale of organisational incompetence vs competence? Revealing how much heavy lifting so few actually do.
What are the effects of incompetence on organisational performance? Revealing the measurable scale of financial losses.
What can an effective Learning & Development strategy deliver? Revealing significant advantages L&D has over recruitment.
Competence vs Incompetence
The model below is based on the work of Dr Derek J. de Solla Price, a Physicist and Mathematician at Cambridge University, who discovered a social phenomenon that occurs in any given population, which is the relationship between that population and its output. In mathematical terms it presents as the Square Root (√) of any given population (n) do 50% of that populations work, known as Prices Law or Price's Square Root Law. In the context of this case study we can use this equation to quantify the relationship between competence and incompetence.
Prices Law - Dr Derek J De Solla Price 1965 & Kenny Wallace 2020
Now that we have a mathematically certain ratio to apply to any headcount; team, department, organisation, we can sperate the high performers from the lower & low performers and add financial context.
Let’s take a headcount of 100, and to keep things simple let’s assume they are each paid a salary of £10,000, a total salary bill of £1million. The first 10 earning a total of £100,000 buys you the same output as the remaining 90 earning a total of £900,000, regardless of what the output relates to; R&D, Sales, Marketing, Finance, IT, Procurement, etc.
Now lets flip this on it's head. We can also measure the negative impact of losing the top 10 performers in our headcount of 100, which is a genuine risk during the likes of a merger & acquisition (M&A). Instead of paying £1million for 100% output you are now paying £900,000 for 50% output.
If we put these numbers in the context of a sales team they now generate 50% of their previous revenue with almost no change in overheads, which almost doubles your cost of customer acquisition. In the context of a helpdesk your cost of query resolution has almost doubled. And you can continue to apply this to any function within your organisation.
These examples demonstrate as organisational headcount grows the acquisition of incompetence far exceeds the acquisition competence leading to an inevitable increase in the number of decision errors, becoming less efficient and less effective with every hire.
With this insight we can reasonably deduce that developing your existing organisation to solve problems is superior to hiring to solve problems as it will increase Competence over Incompetence by measurably improving capability within the same headcount. A well executed Learning & Development strategy aligned with Business Strategy can be a tide that lifts all ships.
Now that we understand the concept how do we harness it in practical terms?
Organisational Performance
The model below is based on a matrix created by Dr Mihaly Csikszentmihalyi, Professor of Psychology at Claremont Graduate University, who was first to formally investigate the traits associated with high performance, which he collectively called Flow; A highly focused mental state conducive to productivity. I have modified it for a business context by looking at the relationship between Challenge, defined as: Degree of difficulty to be overcome, and Support, defined as: Available resources. Four organisational states emerge:
Source: Based on Massimini, Csíkszentmihályi & Carli 1987 and Kenny Wallace 2019
These four cultural archetypes also correlate with specific behaviours that can be measured in any individual, team or organisation:
Anxiety: Missed deadlines, avoidance of interaction, likely negatively impacting employee sickness absence.
Apathy: Absence of enthusiasm or presence of indifference, likely negatively impacting employee retention.
Comfort: Lack of activity and accountability, likely negatively impacting employee productivity.
Flow: Pro-active, self-directed, emphasis on personal responsibility, likely positively impacting all of the above.
Any individual, team, department or organisation moves in and out of these four quadrants depending on the challenges they face and the level of support provided to overcome these challenges. The higher performing an individual or collective is the more time the spend in the FLOW quadrant.
When in pursuit of excellence this manifests as purposeful practice to refine the skills associated with a particular endeavour. When in pursuit of Innovation this manifests as testing new ideas until one or more begin to stick. Neither happen by accident, requiring time and effort to develop the skills required to be successful on either path.
This cycle never ends, hence the phrase continuous improvement. In terms of our model; SMART Objectives are clearly defined finish lines that can be crossed and SMART Behaviours are the deliberate actions taken to cross these finish lines. In terms of an individual; What is your mission and what skills must you learn or enhance to exhibit FLOW quadrant behaviours more often and ensure mission success? The next question is how do you do this at scale for teams, departments and organisations?
Learning & Development
I created this model to demonstrate the relationship between L&D and Recruitment based on Dr Mihaly Csikszentmihalyi work on FLOW states, with particular focus on the FLOW Quadrant. You can see the X and Y axis respectively retain their titles of Challenge and Support. Even though we have demonstrated L&D is a superior tool for moving an entire organisation towards mission success compared to recruitment, recruitment as a tool does also have it's advantages. In the context of this case study we will use this model to determine when which of the two is the right lever to pull.
Source: Based on Massimini, Csíkszentmihályi & Carli 1987 and Kenny Wallace 2019
Very quickly we can see the answer is to relentlessly develop the existing population to ensure competence meets the needs of a growing business or adapt to changes in the market and only recruit at pivotal moments when work volume is predicted to genuinely exceed work capacity, after all there comes a limit to the number of tasks a human being can complete during any given working day, even with automated support.
When I say genuinely exceeds work capacity I really mean it. Recruitment is the lever to pull as a last resort and almost every organisation I have supported pulls this lever far too early, usually because they don't fully understand the problem they think recruitment will solve. To demonstrate my point and show you how effective Learning & Development can be when done well, let me give you an example:
Nearly a decade ago I supported the senior leadership team of a growing tech company. Part of the project involved solving the problem of how to build and implement a learning and development strategy with zero budget beyond salary time, a challenge every young and growing company must come to terms with.
My solution gave people the opportunity to highlight things they wanted to learn and then asked them to come up with proposals for problems in the business they could solve with what they learned, which they had to present to the senior leadership team. This also set in motion the development of strategic thinking and stakeholder management skills from the lowest level in the hierarchy.
Those able to demonstrate a win win were given protected time during the working week to progress their projects. Two of the participants were particularly interested in coding. By giving them time and space to develop their coding skills they created in-house software that automated what was historically a very time and headcount consuming manual process.
Their new software completely eliminated the labour cost for that work and allowed the same labour to be redistributed to other mission critical tasks, generating a significant increase in organisational work capacity within the same headcount and salary bill. It was a win for the staff as they got rid of repetitive unrewarding work, the win for the business was removing a bottle neck that had prevented them growing in terms of market share, i.e. Number of customers they could actually support, and the benefit to customers was significant improvements in service quality.
Until this software solution had been created and implemented, as a direct consequence of my Learning & Development strategy, the CEO was convinced and concerned they needed to recruit several people they couldn't afford to increase organisational work capacity to meet their contractual obligations to clients.
Conclusion
So what?
When done well Learning & Development is superior to Recruitment to solve business problems as it raises competence across an organisation within the same headcount and salary bill as opposed to Recruitment which actually reduces organisational competence with an increase to headcount and salary bill.
Learning & Development is essential for cultures of Excellence and Innovation to thrive as it nudges people incrementally into the types of thinking, behaviour and habits, individually and collectively, required for mission success. The more this is practiced the greater the results it will yield.
Learning & Development is the tool of choice for problem solving with Recruitment kept in the tool box, only to be deployed as a last resort. Recruitment might offer you the illusion of a sticking plaster in the short term, but it will cost you a fortune in the long term as the models demonstrate.
Now what?
If you are struggling to leverage Learning & Development instead of Recruitment, a solution to consider is bringing in a specialist temporarily who can design and implement an L&D program tailored to your needs. Once the program is up and running they can exit leaving you with an embedded system to benefit from without a permanent increase in headcount and salary bill.
Without Learning & Development embedded in your culture as a strategic component you do not, and cannot have, a high performance culture of excellence or Innovation. Any organisation with World Class aspirations considers training and coaching as business as usual. Believing or claiming anything else is an act of self-deception therefore self-sabotage
Using Learning & Development to foster a FLOW based environment will produce individuals and teams that manifest Pro-active and self-directed behaviour that will autonomously solve problems, and optimise their solutions over time, as they continuously challenge themselves to find incremental gains in the pursuit of excellence and every once in a while they will cause a paradigm shift in the pursuit of Innovation.
What next?
Now that you have a better understanding of why Learning & Development is superior to recruitment for solving business problems and moving an organisation closer to mission success, lets consider how we might use what you have learned:
Are you, your team, keen to create and leverage a Learning Development Strategy and struggling to bring it to life? If so, what considerations are you now aware of that you hadn't previously thought of?
Given the demonstrable impact Learning & Development can have when done well; What steps will you and your team take to establish this as fact within your own organisation?
In what ways do you need to think differently about applying Learning and Development to nudge your people towards spending more and more time in a FLOW state?
Take your learning one step further and complete my Case Study Review. Capture your learning from this case study and commit to changes you deem relevant for your situation. A copy of your completed review will be emailed to you instantly.
If you find your L&D ideas are ignored and fall on deaf its possible you are not demonstrating the value it will add to your stakeholders. For further insight do read: Why Does 93% of Learning & Development Have No ROI? to better understand the pitfalls learning and development practitioners regularly experience and why.
If you are encountering resistance and hurdles and you relate to the issues raised in this case study, would benefit from support to set up Learning & Development in your organisation for success, or update your existing program to be strategic and balance business and employee need, then please do consider working with me.
