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Fewer middle managers mean more profits at Spark

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Have agile working practices given Spark better financial results?

Spark New Zealand recently implemented agile working, which is a structured way of organising your workforce into independent teams that are responsible for the whole delivery of a product rather than the traditional way of having more or less independent functional silos.

The agile model that Spark adopted comprises a number of cross-functional teams consisting of people with complementary skills working together and being fully responsible for the whole lifecycle of their part of the overall business.

Some of the benefits quoted from the new ways of working are:

spark new zealand

1. Much faster product launch cycles as planning, production and marketing is done within one team instead of having to be co-ordinated between different silos

2. Reduced number of management layers, halving from six to three layers, and leading to significant cost savings

3. Increased customer service as teams are able to respond to customer needs and implement changes much quicker than before.

It is of course easy to say that, yes this makes a lot of sense but how do we know that it is actually working?

The most obvious is the reduction in headcount and labour costs which shows the total number of employees in the last 1.5 years reduced 7.4% per cent while the annualised net labour costs fell over 19% showing that it is really the reduction in higher paid middle managers that is contributing.

As a result of the falling labour costs, Spark's EBITDA margin has increased about one percentage point and its increased EBITDA about 3%. This is quite a bit for a stable company like Spark.

Early indications are that the other benefits from the agile way of working like shorter product development cycles and increased customer satisfaction are also coming through.

But as these are harder to quantify, we will have to wait and see if this translates into further improved financial results.

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Roger Montgomery is founder, chairman and chief investment officer of Montgomery Investment Management. Following a successful career as an analyst and public company chairman, Roger published the first edition of his stock market guide, Value.able, in 2010, becoming an Australian best seller in just 16 weeks. He holds a Bachelor of Commerce and is a senior fellow of the Financial Institute of Australasia.
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