Leverage: Systems

'Systemization' is one of the greatest sources of operational leverage. I would now like to explain this in detail. However, beware, this article isn't for the faint of heart; you will have to pay close attention throughout. It's not an easy read. On the other hand, systems are most definitely one of the greatest sources of leverage within an operational business; thus, I highly recommend the read.

First, what is a system? A system is a framework in which a routine process is carried out. This framework is a formalized set of procedures, tasks, controls, and measures which are utilized to carry out and complete a process in a desired manner.

Here is a common example: The hiring system which is a sub-system of the HR function. Other sub-systems of the HR function would include deployment, employee service, and so on. The hiring system is comprised of various procedures, tasks, controls, and measures which fulfill the system's desired goal of effective recruitment. Procedurally, a business might solicit internal recruits for an open position; it might search for recruits outside the firm by creating a formal job description and distributing it through various recruitment channels. The potential hires from this external search might go through a pre-screening telephone interview, and thereafter go through an intensive one-on-one interview. The interview questions have been predetermined as well as the entire interview process'it is all formalized. Recruits are then measured objectively to determine compatibility and so forth.

The steps of this entire process has been predicted or experienced and from that knowledge and understanding, the framework is created. We all know this. This is the stuff they teach you in operations management; more specifically, human resources management. Let me tell you, such knowledge gets you only so far. A business manager may know every single step and component of this process inside and out and yet the system may still perform inadequately or mediocrely under his/her supervision. How can this be?

This is the case simply because he or she doesn't know how to leverage the system. In order to leverage a system, one must know and understand the ultimate goal of each component as well as the component's relation to the whole. When this occurs, one spends the right amount of time on the right parts of the system for the right reasons, producing the right results, and it's the right results that we want. When this is all understood, inefficiency is wringed out of the system. Actions that do not correlate positively to the system's improvement are eliminated. Actions that exponentially increase productivity and finally results are given close attention.

The great part of all this is that it's all very very easy; one merely needs to think rather than perform the system duties absent-minded. I will now explain how one must view and understand various components of the hiring system in order to create leverage.

For the sake of brevity, let's say the chief components of the hiring system are as follows: Recruitment, Pre-Screening, and Interviewing. One will always find that the greatest leverage point, or fulcrum so to speak, is found at step no. 1. This is the point from which all other leverage flows. You will see what I mean in just a moment.

Recruitment: Step no. 1. Vitally important. Why so? Think about it (remember, no absent-mindedness). Imagine you get 10 recruits for a sales position; the potential, a derivative of personal talent, of the sales position has just been determined. No matter how well you screen, no matter how well you interview, the performance of the hire will not and cannot exceed the performance level of the highest performer in the group of 10 recruits. On the other hand, let's say that you get 30 recruits for a position. Probability tells us that there is likely to be an individual or individuals in this group that exceed the talent level of the most talented individual in our group of 10. Once again, the potential of the position is limited to the talent level of the most talented individual, but it is no doubt greater than it was before. Of course, numbers are easy to work with and must follow the rule of relevancy which follows here. The ability to recruit the right individuals is vitally important. If you hire random individuals for a sales position, say 50 of them, you may not do any better than hiring 5 seasoned, experienced salespeople. Thus, as part of recruitment, you must focus on two things to maximize leverage: Numbers and Relevancy. And, of course, we could go into great detail how to achieve this, but you can do that elsewhere. Lastly, I want to mention another interesting fact about leverage which can be found in this step: It takes barely any more work to improve numbers and relevancy relative to the potential gain. This is a common trait of leverage; it will be found once again in the interview process.

Alright, so let's say that we hired as many possible recruits as was appropriate, not too few, not too many; and let's say that you did a very good job at recruiting individuals who were fit for the job. On to leverage point 2 (which doesn't have much leverage involved): Pre-Screening; let's say that this pre-screening is a brief telephone interview. Now I'm not going to say much about this point because the amount of potential leverage has already been set. However, the important part is to get rid of the bad and keep the good, obviously. Do just the opposite, and well, you're screwed. This step isn't vitally important as it'll simply help you in your next step, interviewing. Thus, the case will usually be that not as much time will be spent perfecting this step rather than the others.

Leverage point 3: Interviewing. And let's assume that the interview decides who is chosen for the position. First, let's look at one of the common traits of leverage found in hiring: Like recruiting, if you put a little more time and effort into interviews, the potential gain can increase exponentially. The chances of filling a position with the highest potential player can be as low as 5% if you have a pathetic interview process (informal, subjective, etc). This means that the position is most likely to be filled with a mediocre player who will perform at such a level. Put a little more effort into the interview process, perfecting it, and all of a sudden your chances of picking the right person increases greatly; and therefore, the productivity that arises from that position skyrockets'all for a little more work. That is leverage. Take one firm that places little emphasis on exacting the interview process and another one that takes it very seriously, and I'll bet my life on the fact that the latter firm will win any head to head contest in the market. It will survive in the long run; the other will die. Once again, I want to bring to your attention the fact that you will still only be able to hire the best recruit, no more. Thus, the better recruits, the better the potential final result.

Ok, so what I've just described is the hiring process or system (simplified). If the system is weak, the whole firm is weak. If the system is strong, the whole firm is strong (relatively). An increase in the effectiveness and efficiency of the system creates a multiple-fold increase in the effectiveness of the firm because the system produces numerous outputs, an aggregate, rather than one. And this is one of the key reasons why systems are absolutely vital and a huge source of leverage. This is especially true when you take in account all the systems of an organization as a whole. Systems are the pillars which support the firm. One weak pillar produces a weak whole.

Since these systems are so important and, as a whole, create such leverage, it is very important to always be improving the systems; once again, this is because an improvement can create geometric gains over time. You can improve functions and tasks within the systems themselves, but the results can never exceed the effectiveness of the system itself'the potential of which is determined by leverage point one; thus, before inner improvement takes place and improvement on leverage points that occur further down the system, it is usually more important to improve the system as a whole, focusing first on improving leverage point one and then every leverage point starting with the next most important. E.g. Improve recruitment before hiring. (This assumes they're currently at the same level of effectiveness).

This has been a brief description of systems as a source of leverage.