I was talking to a former Oil & Gas industry veteran when he regaled a story that reflected the often conflicting agendas in an organisation.
As the head of manufacturing computing, he and his department ran the entire plant computing automation – from building and supporting all systems, applications and hardware, to optimisation of plant processes.
Whilst the department was responsible for building and supporting all manufacturing processes for the plant, the annual cost of maintaining the department was in the range of $2 million for salaries and another $10 million for systems operations – comparable to the annual budget of a small to medium sized enterprise.
One fine day during a discussion, a “higher up” broached the topic of converting the department from an “overhead” or “expense” into a “cost centre” where every cent used to run the department would be billed to the departments that used the service.
This suggestion did not sit well with my friend on a few levels:-
- Proprietary technology. The organisation’s manufacturing operations was proprietary to the organisation. Therefore, his department was mission critical to the manufacturing operations. Furthermore, his department’s service was specific to manufacturing operations and could not be re-used for other divisions, say, Marketing, Purchasing or Logistics.
- Perspective of Profit/Loss versus Expense. It was also his view that at the end of the day, any profit generated from services rendered to other departments would still contribute to the organisation’s overall financial performance. Currently, apart from the indirect costs (salaries) involved in maintaining the department, all other direct operating costs (third party services and hardware costs) were charged back to the “consuming departments”.
- Looking Good on Paper versus High Productivity. My friend also foresaw the impact of being a cost centre in terms of productivity. With the need to bill for every minute of his team’s time, the productivity of his team would suffer as they would be required to spend a significant amount of time on administrative paperwork, as opposed to focusing on their core responsibilities. In the long run, this would lead to inefficiencies in the department’s operations.
Why am I telling this story?
The on-going battle of “Organisational Good” versus “Executives’ Interests”
I saw where both my friend and his “higher up” came from in terms of their view. While I did not speak with the “higher up”, I could imagine that the reason for exploring the option of the department becoming a cost centre was for the purpose of having a clearer “management view” of costs in the organisation. Or that it looks better on the P&L instead of being an expense.
While this was all acceptable from a financial viewpoint, very often an organisation’s management would be overly zealous in its pursuit for a glossier financial performance (even if on paper) at the expense of productivity, or intangibles like staff morale.
Who could blame them? With persistent calls of shareholders to “unlock value” and increase the organisation’s share value, it was inevitable for its managers to think long term when shareholders do not have the patience to stomach relatively poorer financial performance.
The Existence of “Defenders of the Organisation Good”
When my friend said that “at the end of the day, all the department’s ‘profit’ goes back to the organisation”, he didn’t say it with the same resignated breath of an “I-am-just-an-employee”, but carried the introspection of an “invested stakeholder”.
His interest was aligned with his organisation’s.
Instead of looking at the pros and cons specific to his department, he also saw the chain effect of being a cost centre to other departments. In this instance, the cons outweighed the pros of his department becoming a cost centre in the organisation – for both his department, and those of his user groups.
As the head of his department, he considered the impact of the change to his people and their productivity. As a team player in the organisation, he considered the impact of the change to his co-workers and their operational budget.
To his “higher up”, my friend was a mirror of truth, reflecting honesty and forthrightness in his analysis and feedback.
But honestly, his kind is rare and due to their personality traits, often are leaders in specialist arena, not the main arena where organisation culture can be influenced to encourage more wide-spread “invested stakeholder” mentality.
Therefore, to answer the question posed in the title, I will say “No”, but continue to hold out a “Yes” in the hope of encountering more executives of the likes of my friend.