Sometime back I came to know from an old friend of mine that his medium-sized firm located in San Diego had decided to drop a product line with almost five million dollars of annual revenue because the management found the product line unprofitable. The product line required 50 full-time employees to generate sales, maintain the website and provide customer service at a direct cost of about $4.6 million per year. In addition, the product line was paying $800,000 as internal chargeback for the use of company-owned data center and corporate office. Clearly, it was not hard to notice that the company was losing $400,000 per year on this product line. At an offsite meeting it made a lot of sense to the company executives to shut it down and layoff 50 employees. As you may have already guessed, the company ended up losing $400,000 per year.
It is not surprising that such misguided decisions continue to be made more than five centuries after the invention of accounting. The issue here is not understanding of cost accounting. The problem is with corporate dysfunction, which when not kept in check by the top leadership, creates an environment in which facts are twisted to serve the interests of powerful coalitions, information is colored, personal agendas are advanced at the cost of creation of customer value and no one rises to challenge conventional wisdom.
In traditional organizations, only executive leadership is capable of challenging and stopping this tendency of organizations to become dysfunctional. What does it take? It takes candor, honesty without insensitivity, openness to inquire into thoughts that are contrary to one’s beliefs or conventional wisdom and a healthy dose of ego-suppression syrup. What are the alternatives if you are not at the executive leadership level? Candor, honesty and openness will still help you stay above the organizational dysfunctions and contribute effectively. Just remember, it is important to be nice. Don’t be rude, even if you are right. As Peter (Drucker) used to say in his class that organizations were bodies in motion and politeness was the lubricant that kept organizations working without friction.
Have a nice day and will talk to you soon!
It is not surprising that such misguided decisions continue to be made more than five centuries after the invention of accounting. The issue here is not understanding of cost accounting. The problem is with corporate dysfunction, which when not kept in check by the top leadership, creates an environment in which facts are twisted to serve the interests of powerful coalitions, information is colored, personal agendas are advanced at the cost of creation of customer value and no one rises to challenge conventional wisdom.
In traditional organizations, only executive leadership is capable of challenging and stopping this tendency of organizations to become dysfunctional. What does it take? It takes candor, honesty without insensitivity, openness to inquire into thoughts that are contrary to one’s beliefs or conventional wisdom and a healthy dose of ego-suppression syrup. What are the alternatives if you are not at the executive leadership level? Candor, honesty and openness will still help you stay above the organizational dysfunctions and contribute effectively. Just remember, it is important to be nice. Don’t be rude, even if you are right. As Peter (Drucker) used to say in his class that organizations were bodies in motion and politeness was the lubricant that kept organizations working without friction.
Have a nice day and will talk to you soon!
No comments:
Post a Comment