Corporate Finance

The Cost of Failing to Optimize Your Teams

CFOs should demand HR systems that reflect not only individual positions, but also their potential combinations.
John BoudreauMay 27, 2014

John Boudreau ColumnistIs teamwork among your assets? It’s not recorded in formal financial statements, but teams are vital in achieving strategic and financial goals. Business strategies increasingly depend on creating the right combination of interdependent performance from many people in many different jobs. Yet, typical HR systems are not built to optimize teams.

I encourage leaders to “retool” HR issues like team optimization using traditional management models. If the team optimization dilemma sounds familiar, it’s similar to a classic optimization question taught in every business and engineering program: how to choose the optimal combination when each component has a unique set of features. A variant called the “Diet Problem” was one of the first optimization problems studied, in the 1930s and 1940s. The U.S. Army wanted to minimize the cost of feeding GIs in the field while still providing a healthy diet. Given a set of foods, and nutrient information and cost per serving for each food, the diet problem is to select the number of servings of each to minimize food costs while meeting nutritional requirements.

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Team optimization is not unlike the diet problem and its ilk. You want to optimize the combination of people on the team, considering the value of each person’s unique contributions and the cost (in time and money) of assigning him or her to the team. Some team members might even act as catalysts to enhance the value of others, just as a certain enzyme might act as a catalyst in a nutritional equation.

Consider “extreme programming” in software development. The concept describes development that breaks the tradition where each stage (planning, needs analysis, design, develop, test, release, maintain) is separate and must be completed before the next stage begins. Extreme programming uses rapid prototyping, where stages occur together and quickly, to produce a series of imperfect prototypes that are incrementally improved by teams of users, designers, planners, testers and developers working together. This can increase agility and speed, and it pivots on teamwork.

Innovation strategies, inorganic growth and new-market entry often hinge on how effectively product developers collaborate with customers or users. Tasks require different configurations of capabilities and characteristics. Traditional software development, using a sequence of independent tasks, might be optimized by having the best expert in every job, but rapid prototyping might be better optimized by accepting lower levels of individual expertise in some areas if you can get greater collaboration. Or, it might be optimized by using one capability as a catalyst. For example, when collaborating with users, it may be less preferable to have the best designer than a pretty good designer who is a catalyst for getting users to share their best insights.

Typical HR systems don’t track collaboration skills or the trade-offs between individual expertise and catalytic combinations. That’s not because HR leaders aren’t aware of them. It’s because most HR systems in use today were built on a structure developed when individual employees worked mostly independently in particular jobs. The systems are designed to analyze the skills, pay and training of individuals; or map the organization’s individual positions; or generate position-specific reports on the number of employees, turnover rates, pay ranges and skill levels and requirements.

Yet, when you create a team combining particular individuals from particular positions, nothing changes in most HR systems, because the same people are still in the same jobs. In reality, though, success lies in the gray area between the individual team members and their individual jobs. One consulting firm, PearlHPS, recounts the disappointing results from its initial attempts to predict organizational performance by looking at the traits of CEOs (one person in one job). Then it looked at the second- and third-level teams below the CEOs, and found that their teamwork competence, goal alignment and continuity was a much better predictor of organizational effectiveness.

CFOs and HR leaders should demand and build HR systems that reflect not only individuals and positions, but also their potential combinations. Decades of research exists to measure vital elements of teamwork and team configuration, but not much of it shows up in today’s HR information systems. We need systems that treat teamwork as something to be optimized.

John Boudreau is a professor and research director at the University of Southern California’s Marshall School of Business and Center for Effective Organizations, and author of Retooling HR: Using Proven Business Tools to Make Better Decisions About Talent.