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Cost Center disease

August 5, 2011

 

 

I was just going through my xp2011 notes, when I found this topic Mary and Tom Poppendieck  presented as part of “the fit of software development in the Larger Organization- Optimize the whole” tutorial @ Xp2011 last May 2011.

Here are some notes ( not so many as it is difficult to keep on writing while someone as Mary is speaking.. so many ideas flow between her and the audience that it’s almost impossible to do anything else but listening..truly listening).

 

Cost Center disease first symptom  would be when your company focus more on cost reduction than in delivering value. you can easily see this when communication flow among people in a company is about numbers rather than achievements. When people are asked to achieve numeric targets rather than innovate or present behavioral changes.

But what causes Cost Center disease?

a) Local sub-optimization

Departmentalization of  cost to get for local optimization.  Let us say (random example) your company cuts down local It support and creates IT departament that will provide remote support.  This is very good to save costs and even to grow up knowledge in that department (rather than have it all fragmented).. but it may turn out that IT issues take longer to solve (you know that some things can’t be solved remotely) and that actually will make your overall cost to grow.

you won’t see them as IT costs, you’ll even see some stats saying It costs went woen, but actually, all over all other departments, costs will increase and your people productivity is slowing down.. case maybe now they’ll wait 2 days to have the latop working properly – multiply that for thousands of people everyday.. this happened to me this week. I assure you that my remote IT support was fabulous..unfortunately wasn’t enough cause some things aren’t to be solve remotely..Fortunately we also have a local support for “special cases”.

Back in 90’s  (this is like 20 years ago!!) Peter Drucker explained that boundaries across the company would increase costs by 30%.

 

Efficiency Focus

Cost of doing business isn’t accepted. Investment is low as costs need to be pull down. No distinction between “good costs” and “bad Costs”.

You see 2 people cutting wood with a old saw. you say: let us sharpen the saw (so that we can cut wooder faster, without so much effort). they say: we can’t- we are too occupied cutting the wood.

This focus demoralizes people. Why bother having new ideas? We can’t put them in place if they cost anything..and if they don’t we won’t be able to put them cause we can’t let people just take some time off to do other stuff.

Project Thinking

Manage by means not by numbers.

When you’re managing numeric targets you’re not working towards customer wish list (unless of course you’re an accountant).

Customers buy services, features, innovation, prestige. They don’t buy Cheap-features-I-made-that-actually-are-crap-cause-I-had-to-cut-costs. They’ll hate you for that when they find out.

b)  People-as-resources mentality

This is my favorite of course. I found out why. Because I’m a person. That’s right.

I still don’t get it. we work with and for people , but still people treat other people as resources, ops! sorry.. fixed cost items actually. Kind of weird hum?

You actually know what’s the most powerful asset a company has, right? Can you imagine what could people invent and create if they felt good about the place they work? It isn’t only about chairs and open space, it’s about belonging. Not feeling fear of being part of a cut-down-costs-list.

 

c) Disconnecting Development from Customer

This says it all right?.

Just an exercise: Imagine you are sick. Your doctor says you need to do a bunch of exams. You send your wife to do them for you.

 

About cost disease this was about it (of course that this is a short presentation of Mary’s unfinished wisdom).

 

I would add to this presentation that this is no longer a disease..rather a epidemic.

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