Time to exorcise your shadows & phantoms

By shining a light on "spectre" staffing, portfolio companies can either exorcise these previously unseen costs or - better still - harness their power to create value, write Tom Anderson and Mike Michienzi of the Riverside Company

Spectre staffing lurks within the cost structures of many companies. Consisting of shadows and phantoms, these staff are either buried across the payroll of unsuspecting organisations, or don't show up on the payroll file at all. But they’re there, hidden and often unrestrained, causing organisational dysfunction – and bloating company costs by up to 40 percent.
“Shadow” staff are those people doing work, often redundantly, that other parts of the organisation are supposed to be doing.  Examples of redundant Finance, HR, IT and other positions can be found across virtually all functions of most companies. For example: the Sales department hires its own analyst because they don’t like the reports they get from Finance; Retail Operations brings on a recruiter because HR hasn’t provided qualified candidates; Finance has a database jockey because they’re tired of waiting for IT queries. 
“Phantom staff” is a phrase we coined for the varieties of virtual staffing that show up on neither the payroll file nor the headcount roster.  It’s the overtime, the temps, the contractors and the consultants who, when added up across the year, often equate to some 20 percent of total staff costs – i.e. 20 percent more staffing than is formally included in headcount reports. This represents a huge and often unnoticed expense.
Better companies weed out these inefficient and counterproductive shadows and phantoms lurking throughout their organisations – and by doing so, can realise cost savings of up to 20 percent.
The exorcism is a simple but rarely practiced ritual. It requires documenting the entire organisational structure; analysing true activity (regardless of formal titles); remedying root causes of shadow and phantom activity; redesigning roles and responsibilities to eliminate spectres and improve organisational efficiencies; realigning the formal organisational structure; and then continuously monitoring to keep spectres at bay. It requires company management to pay careful and regular attention to anyone working in any capacity at their company.
Leveraging the dark side

At this stage, the simplest solution is to eradicate spectres wherever they haunt. The reward is organisational clarity, significantly better performance, and noteworthy savings that go right to the bottom line.
However, a much more difficult and dangerous game – which has been played with great results by some – is to embrace shadow and phantom staffing. 

The key here is to illuminate and monitor the phantoms, ensuring they bring tangible value to their visible brethren every day. This can be done by augmenting formal staff reporting systems to include actively tracking the cost and performance of temporary labour, contractors, consultants, overtime, side projects, and embedded functional staff.

Just as they do with full-time employees, companies must very clearly define scope, roles and deliverables for contractors, overtime and other excess staffing. When new shadows and phantoms are required, ensure that those new projects are clearly defined. This will allow you to exorcise those phantoms as their specific roles are completed.

Tom Anderson is an operating partner and Mike Michienzi is a senior operating partner at The Riverside Company.