Making the Division of Labor Effective

July 6, 2018

The Division of Labor was first proposed in Adam Smith’s famous 1776 book, the Wealth of Nations, as a critical factor in the productivity of countries. It has been pursued by many organizations ever since and has become much more common with the ability to outsource tasks to other countries. Aside from offshore delegation, a common example is an assembly line, through which the effective division of labor led to mass manufacturing of automobiles at a dramatically lowered cost.

In the modern world many of our handoffs stem from a wage differential. In healthcare, a physician is often compensated more than a nurse, and as a result will delegate many tasks to the nurse as the nurse is capable. The same occurs between nurse and personal support worker, surgeon and family doctor, and in all other industries, such that, ideally, everyone is completing tasks at the limits of their ability and each task is completed by the lowest cost (but adequately skilled) resource.

Among other conditions, the differentiation of labor requires two key factors to be successful. First, the work must be completed by everyone without cumbersome verification by others: optimally each person completes their work correctly and all others trust the accuracy of the work. Second, the cost of the handoff must be less than the cost savings (created by the wage differential) between the two individuals. Both are examined in more detail below.

Consider the example above in which the physician delegates tasks to the nurse, but watches the nurse perform each one, such that the physician completes nothing in the meantime. Instead of one person’s time consumed in the task, this situation consumes that of two. While this example is extreme, consider instead the insurance underwriter who leverages a policy services team to complete paperwork. While seemingly effective, the underwriter checks every contract field before completing his own task. The seemingly important check could take more than half the time that it took to input the data in the first place.

We prevent this type of handoff loss in a number of ways, including the common Lean tool called the poka-yoke. This error-proofing makes defects obvious such that no detailed checks are needed. In the insurance example, Conditional Formatting or Data Validation in Microsoft Excel could make errors so easy to spot that there is no need for an underwriter to conduct a check.

The second loss stems from time taken for the handoff itself. In many industries, handoffs occur through email, phone or a workflow management system, with variable work products and detailed instructions. For an example, look to your own emails for tasks that have been handed to you or by you. At least one will have a long description of what a file is and what to do with it. The longer the email is, the greater the handoff loss – and in some cases the loss is greater than the savings. To make the point clear, I’ve offered a real example: a Manager’s total cost is $120,000 per year, approximately $1.00 per minute, while his report’s total cost is $90,000, about 75 cents per minute. A task takes either individual 4 minutes to complete, and the instructions take 2 minutes to write. Should the manager choose to delegate, the task costs 20% more ($5 vs $4).

Rather than simply avoid handoffs and encourage over-skilled work, the key lever to make the division of labor more profitable is to burden of the handoff. In an assembly line, units move automatically between stations, and each person has a clear and consistent task. Using this as inspiration, every business can create Standard Operating Procedures, if-then guidelines and other shortcuts to minimize repeatable instructions manually written. Provide training to help individuals make decisions without the need for others. Differentiation of labor is the result of organizational structure, and as part of an initiative to reduce handoffs the organizational structure should be realigned with the company’s strategy and the voice of the customer.

Overall, while the division of labor creates efficiencies within tasks of the process, it can easily wreak havoc on the efficiency, and effectiveness, of the process as a whole. Therefore, it is critical to examine your team’s handoffs periodically to minimize sources of waste and continuously improve performance.