Tuesday, April 5, 2016

Shadow Work and Shadow Staffs in Organizations

I recently came across Craig Lambert’s book Shadow Work, in which he describes all those unpaid tasks we perform on behalf of businesses and organizations – from self-service ATMs, supermarkets, and gas stations, to shopping web sites. He places the blame with our sleep deprivation and our stress levels partially on these businesses, stating that part of our fatigue “… comes from performing extra jobs that were once done by someone else …” (p. 182)

Shadow work can sometimes save customers time or money (unless you live in New Jersey or Oregon, think about your experience with self-serve pumps at the gas station) and give customers a sense of control and autonomy, but it can also cost jobs and decrease human interaction (there are no more gas station attendants to exchange small talk with – not that this was the highlight of your day anyway).

While his definition of shadow work refers to tasks by businesses that are in a sense passed on to customers, there is another use of this term in organizational behavior. Shadow work in organizations refers to work that is conducted over and above (and at times in place of) the formal or official organizational structure. This is work that is done by shadow organizations or shadow staffs; while they are prevalent in IT (note the flap about Hillary Clinton’s private e-mail server, a good example of a shadow IT presence), they also exist in other functions, such as HR, marketing, and finance.

I first heard the term several years ago when a multinational I was familiar with embarked on a strategy to implement global support functions (like HR, Finance, and IT) that would provide “shared services” for its business units and subsidiaries around the world. As a first step, the company gathered headcount figures to identify the number of employees performing “duplicate functions” within different business units and subsidiaries. Such shadow staff added another 15-20% to total support staff head count. This is consistent with work that consultants at Booz & Co. found in their own analyses (Booz & Co., 2003). It turns out that certain business units and subsidiaries had created their own mini-support functions, in many cases duplicating and doing work that was sometimes not aligned with the global support functions’ direction.

Why have such shadow staffs? There seem to be five major reasons. First, business unit heads and subsidiaries want their functions to be able to perform certain tasks which they do not believe they can get from the corporate functions. Perhaps the subsidiary has a unique need such as a talent recruitment and development program for engineering graduates at certain local schools. Given their needs, this subsidiary knows that corporate would not really understand their situation, and so it would be more efficient simply to have its local HR function develop and implement this program without having to involve corporate. Second, business unit managers and local support staff may not feel that they are getting sufficient support from their corporate or global functions. In some cases, the corporate model may either be too sophisticated or not sophisticated enough in meeting their local needs. In other cases, the local business or subsidiary may not be high on corporate’s priority, where the focus (and resources) might be on other more strategic or more important business units or subsidiaries. Third, and this is related to the second reason, the business units may not feel that corporate truly understands their needs, or that they are responsive enough to their needs. One business manager executive I interviewed spoke about the bureaucracy in the global function, and his challenges in even getting the proper attention for and understanding of his marketing needs. Fourth, the business units might be operating under a legacy system that does not align with the global or corporate system, and the costs of conversion might be prohibitive for the subsidiary. This is true especially with IT; for example, the Gartner group predicted several years ago (Gartner press release, 2011) that:

“By 2015, 35 percent of enterprise IT expenditures for most organizations will be managed outside the IT department's budget … These people are demanding control over the IT expenditure required to evolve the organization within the confines of their roles and responsibilities. CIOs will see some of their current budget simply reallocated to other areas of the business. In other cases, IT projects will be redefined as business projects with line-of-business managers in control.”

Fifth, the structure, governance mechanisms, and culture of the company encourage business units and subsidiaries to do what they have to do to succeed. In many cases, the rules of engagement have never been spelled out, or are not clear. There are no explicit guidelines or policies on various roles and responsibilities among corporate and regional or local staffs; in some organizations that are decentralized, in fact, subsidiaries have considerable latitude in determining their staffs and their activities. Besides, if they can get away with it and there are no adverse consequences but good upside potential, why not? The costs can be hidden or buried and if senior management does not really care, especially if the duplicate staff is not really that expensive (as is the case in many emerging markets), then local management will simply create a shadow staff. According to Korolov (2015), for example, only about 8 percent of companies know and can actually track their shadow IT. However, the local subsidiary might at times come up with interesting and innovative solutions that help drive its local business forward.

Despite these solid business reasons, however, there are unintended consequences to such shadow staffs. One, they may waste company resources and create inefficiencies – not only in terms of headcount duplication but also misalignment. For example, in one organization, a local subsidiary had developed its own competency model and performance management system that were quite at odds with the systems that the parent company had developed for the entire organization. Two, they perpetuate the schism between corporate or global and the business units and subsidiaries. The corporate or global functions can gradually become further removed from the subsidiaries and, without feedback mechanisms to learn from the subsidiaries, a vicious cycle is perpetuated.

Many years ago, Bartlett and Ghoshal (1992) wrote about the need for global leaders heading these global functions to be strategists, architects and coordinators; and for local leaders like country managers to act as sensors, builders and contributors. Their recommendations suggest close collaboration and cooperation between global and local leaders. Three, shadow work contributes to silo thinking and further erosion of collaboration and best-practice sharing between business units and across subsidiaries. Tett (2015), in her book The Silo Effect gives detailed examples of the negative impact of silos on innovation and profitability (her section on Sony’s failures due to its traditional silos is especially relevant).

The presence of shadow work and shadow staffs is more prevalent with large companies, especially those with subsidiaries in different countries, separated from headquarters by distance. However, eliminating shadow staffs may not always be the solution, especially if shadow work done in some subsidiaries is truly innovative and may be transferrable across the organization. Here are a few suggestions for addressing shadow staffs. One, create mechanisms to have global support functions better understand needs of different business units and subsidiaries. For example, corporate functions might have “account managers” who will be responsible for interfacing with internal customers to make sure that they have a good understanding of their customers’ needs. In some cases, these account managers are located closer to the customer geographically, but maintain a solid line or a dual reporting relationship to corporate.

Two, create centers of excellence or expertise in selected subsidiaries or business units. while giving them regional or global responsibility. It is very possible that there are pockets of deep expertise that a subsidiary or business unit has developed. If so, rather than dismantling this expertise, make them available to the entire organization. For example, in one organization, the finance function in its French subsidiary had managed to attract very talented financial professionals who had introduced some innovative finance practices. This French finance function eventually become a center of expertise for the organization’s European region, providing support and expertise to the other finance functions in the company’s European markets.

Three, make structural changes and create governance mechanisms (especially in reporting relationships) to break down the we-they mindset. Many multinationals have support functions in subsidiaries with dual reporting relationships – both to their local management as well as to regional or global management for that function. For example, the head of HR for a subsidiary would report to both his or her country general manager as well as to a regional head of HR.

If the strategic decision is made to reduce or eliminate shadow staff, then make sure to have the following in place: a transition period to allow the business unit or subsidiary to adjust; provisions to help ensure that the local business unit or subsidiary can continue any value-added work, for example, by assigning global or local staff to support this work; and retention plans in place for any talented local or global staff that may be affected by headcount reductions.

Bartlett, C. and Ghoshal, S. (1992). What Is a Global Manager? Harvard Business Review, 70 (5): 124-132.

Booz & Company (2003). Shining the Light on Shadow Staff. http://www.strategyand.pwc.com/media/uploads/ShiningtheLightonShadowStaff.pdf

Gartner Press Release (2011). http://www.gartner.com/newsroom/id/1862714

Lambert, C. (2015). Shadow Work: The Unpaid, Unseen Jobs That Fill Your Day. Berkeley, CA: Counterpoint.

Tett, G. (2015). The Silo Effect: The Perils of Expertise and the Promise of Breaking Down Barriers. New York: Simon & Schuster.