By Ian J. Cook, CHRP  

On a recent visit to Science World I came across an item they called the “Chaotic Pendulum”. This device was made up from a series of pendulums all hanging from different parts of an overall pendulum. It looked a little like a stainless steel doll that was badly put together, with different lengths of arms and legs.  When swung, the pendulums danced and jerked around in an erratic fashion. The whole thing looked chaotic.

The timing of each pendulum’s swing differs. These different tempos interfere with each other and cause the overall system to jangle in an erratic fashion.  It does not look comfortable and the energy put into the system does not last long as each pendulum slows down the other.

This physical system is very like what happens in many organizational systems. The speed of information from the sales system, differs from the budgeting process, which differs from the pace of technology change, which all then impact on the pace of change required in HR and the people who make the business work. Here is a very current example. Over 40% of the organizations who were laying off workers at the beginning of the year are starting to hire some of them back. The speed of the financial information generated a human process. Almost before the process of reducing headcount can be completed the financial picture changes and the actions change again. This back and forth is incredibly costly both in terms of the hard costs of terminating and hiring and in terms of intangible costs such as damage to senior leadership credibility and organizational reputation. The different paces of the two systems, (like the pendulums) causes energy to be lost.

I am sure there are many HR professionals wondering about how their time is being used as they rush from downsizing to upsizing and potentially back again. The problem here is the fundamentally different organizational dynamics that affect two core systems. The first we will call the financial system. This includes the monitoring of revenues, expenses, budgeting, reporting etc. The second we will call the human system. This includes the process of bringing people into and out of the organization, developing their capabilities and progressing them through the organization, as well as structuring roles and rewards that drive the organization towards its goals. The human system moves much slower than the financial one. However change ready and agile an organization is this will always be the case. Unfortunately organizational decisions are often driven from the financial information and do not take into account how long (realistically) it will take to re-orient or adjust the human system relative to the decision.

A prime example of this mismatch and the value destroyed is in the field of mergers and acquisitions. In previous decades the decision was often driven from a financial model of increased revenue and greater cost saving. In reality (over 80% of cases) the value did not materialize due to “people issues”. The required changes to the human system were not studied, understood and the time required was not factored into the financial projections. Often the changes to the human system failed to happen and the projected benefits from the merger never materialized.

The merger studies provide a powerful example as they highlight two key points. The first is that it is the human system which creates value. It is the human system which deals with customers, creates cost savings, generates product innovations etc, etc. It is the human system which takes time to change, re-align and energize. The human system is the slower system and it is the system which determines success. However counter to this reality it is the financial system which drives the decisions, projects results and monitors progress. However the financial system can only monitor outcomes it cannot actually create those outcomes. The imbalance between these two systems causes decisions and actions which waste time, energy and the organization’s opportunity to be successful.

Leading organizations are changing this imbalance and adjusting their processes of decision and action. Those organizations that used furloughs, sabbaticals, secondments, delayed hiring, reduced hours, and more to reduce their labour costs, while retaining people, are those that understand this fundamental organizational dynamic. These are the organizations that are enhancing their use of energy and their opportunity to thrive by bringing balance to their human and financial systems. These are the organizations who will maximize their opportunity to be successful through the ups and downs of the economic cycle.

Ian J Cook, CHRP, is the director of HR knowledge and research at BC HRMA. Ian is using his global HR consulting experience and business knowledge to grow a function which delivers informative, relevant and timely comment.