October 26, 2011 at 7:13 am
djackson 22568 (10/25/2011)
IT does not generate revenue no matter how you want to measure it. We cost money. Hopefully if we do our job right we allow the company to save money in other areas, and maybe, just maybe, we allow revenues to increase by making something more valuable. The exception to this would be software companies, but most IT staff work outside of that area. We don't sell our services or products, we provide a service to an organization that allows the company to do more with less.These facts can't be changed, but long term maybe companies will eventually begin to understand that HR, IT and other areas do in fact add value if not revenue.
Well said, and it's up to IT to show value, and improvement for other areas so that the "overhead" is justified.
October 26, 2011 at 7:16 am
L' Eomot Inversé (10/25/2011)
I agree it's necessary and should be there, but I don't agree that it's always an overhead....
Also remember that "overhead" doesn't mean "not valuable" or "not necessary".
It's not always overhead, though I might argue in your case that some of your IT was overhead, some was a product development/manufacturing, or perhaps a separate group not IT. The developers at MS that write SQL Server are not overhead, nor are they IT. The people that keep email running are overhead.
The base view is that most IT services are not generating revenue because they are used internally, like water, or bathrooms and their cleaning crew. However they're needed, and they improve the way the company works.
IT can do more, and it can show more, but it's up to IT people to not act as overhead and ensure they provide more value.
October 26, 2011 at 7:26 am
Steve Jones - SSC Editor (10/26/2011)
L' Eomot Inversé (10/25/2011)
I agree it's necessary and should be there, but I don't agree that it's always an overhead....
Also remember that "overhead" doesn't mean "not valuable" or "not necessary".
It's not always overhead, though I might argue in your case that some of your IT was overhead, some was a product development/manufacturing, or perhaps a separate group not IT. The developers at MS that write SQL Server are not overhead, nor are they IT. The people that keep email running are overhead.
The base view is that most IT services are not generating revenue because they are used internally, like water, or bathrooms and their cleaning crew. However they're needed, and they improve the way the company works.
IT can do more, and it can show more, but it's up to IT people to not act as overhead and ensure they provide more value.
Back to you Steve, also well said!
The difference in some of the examples given in this topic are mainly about companies that are an IT company and companies that are not. To Ford, IT is overhead as is HR. To Microsoft, developers are not overhead, they develop the product, but like you said, those who keep the Microsoft email servers running are overhead.
HR is the same - unless the company SELLS their HR services, which some do, HR is overhead. It does not provide direct profit on the bottom line. So anything done to add value to what HR does is more likely to be viewed favorably if the results can be measured. Sure we all know that HR can do things to increase morale, but can we measure it? Most people know IT offers value, but I don't know too many executives who view it as positively as we do. Therein is the problem.
How do IT staffers provide data showing that their role added to the bottom line?
If a hospital adds an electronic medical record, and the medical records staff stays the same or increases, did IT add value? No, not from a profit perspective. Yes, from a perspective that although no employees lost their job, they either have less stress or they are doing other things that need to be done.
If HR can provide services to employees that help employees be more productive (happier employees) then they did not directly add to the bottom line either, but still added value.
Dave
October 26, 2011 at 7:44 am
Steve Jones - SSC Editor (10/25/2011)
OCTom (10/25/2011)
Do people tell the truth in exit interviews? People may be reluctant to say what is wrong because they don't want to burn any bridges.If that's the case, then I would hesitate using anything from the exit interviews. It could skew or hide what is really happening.
Yes and no, and you'd have to take the data with a grain of salt, maybe assign some factor that discounts validity, or accounts for some mis-truths. I have heard people go both ways, sometimes brutally honest, sometimes completely false.
I've never been on the HR end of an exit interview. So, I don't know what people really say. I have always been reluctant to tell the whole truth, especially if it's bad. I may want to use them as a reference or referral later.
A question I have had for a long time about BI. If you need to treat the output with skepticism, why build the BI in the first place? Is BI just a buzzword with no substance? Granted, I have never been involved in a BI project. So, I really don't know. Thanks.
October 26, 2011 at 7:45 am
djackson 22568 (10/25/2011)
Matt Miller (#4) (10/25/2011)
Steve Jones - SSC Editor (10/25/2011)
richj-826679 (10/25/2011)
Human Resource departments are similar to IT departments in that both of them are a cost to the organization without generating revenue
How many companies can work successfully for a day or two with no HR functions? How many of those can say the same if all of their IT hardware was down? Or, if that's not apples-to-apples, how about no IT staff?
It's still overhead. Not that it's bad, but like water, power, phone, it's overhead that doesn't directly relate to revenue.
The MBAs have given this overhead a bad name, but it's necessary and should be there.
If it is overhead, and cannot be tied back to revenue or some other value added to the business, then it's probably not worth doing. There's a difference between things that add NO value, and expenses that are not easy to allocate to a specific value stream.
That said - just because it's not one of the lines on the annual statement doesn't mean it can't add value. Take it from this MBA: activities that increase morale, reduce turnover, or make the company work are not only necessary, they're valuable.
Walk up to your CIO and ask him if it would be valuable to be more effective at hiring appropriate talent, or give them a reason to want to work through lunch, or saves someone 2 minutes per iteration on a repeating task.
You are looking at it the wrong way. I have not taken any real accounting classes, but every company I have worked for terms their departments as "cost centers" for a reason. Departments cost money to run. Sales generates income. Purchasing does not. Purchasing can do more for the bottom line than sales, but they are still looked at as not generating revenue. If you have a 10% margin, and sales increase from $100,000 to $110,000, the net effect is another $1,000 in profit. However if purchasing cuts a deal that saves the company $10,000 in purchase costs, that full amount goes to profit - yet it is still not looked at as generating revenue.
IT does not generate revenue no matter how you want to measure it. We cost money. Hopefully if we do our job right we allow the company to save money in other areas, and maybe, just maybe, we allow revenues to increase by making something more valuable. The exception to this would be software companies, but most IT staff work outside of that area. We don't sell our services or products, we provide a service to an organization that allows the company to do more with less.
These facts can't be changed, but long term maybe companies will eventually begin to understand that HR, IT and other areas do in fact add value if not revenue.
We're saying the same things ultimately. Still you yourself are missing one point: if we give the company new capabilities by these actions, we CAN influence the bottom line, sometimes not directly, but still. For example, coming up with an effective affinity program can and will increase sales; happy employees do more, sell more and ultimately cost less per unit. At the end of the day, (gross) income means very little: revenue (i.e. profit) is the driver. Apple dramatically increased their sales this quarter, by dropping their price, but their profit dropped as a result.
Reducing cost (or cost per unit) is often a better way to increase revenue than increasing sales.
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Your lack of planning does not constitute an emergency on my part...unless you're my manager...or a director and above...or a really loud-spoken end-user..All right - what was my emergency again?
October 26, 2011 at 9:17 am
Matt Miller (#4) (10/26/2011)
djackson 22568 (10/25/2011)
Matt Miller (#4) (10/25/2011)
Steve Jones - SSC Editor (10/25/2011)
richj-826679 (10/25/2011)
Human Resource departments are similar to IT departments in that both of them are a cost to the organization without generating revenue
How many companies can work successfully for a day or two with no HR functions? How many of those can say the same if all of their IT hardware was down? Or, if that's not apples-to-apples, how about no IT staff?
It's still overhead. Not that it's bad, but like water, power, phone, it's overhead that doesn't directly relate to revenue.
The MBAs have given this overhead a bad name, but it's necessary and should be there.
If it is overhead, and cannot be tied back to revenue or some other value added to the business, then it's probably not worth doing. There's a difference between things that add NO value, and expenses that are not easy to allocate to a specific value stream.
That said - just because it's not one of the lines on the annual statement doesn't mean it can't add value. Take it from this MBA: activities that increase morale, reduce turnover, or make the company work are not only necessary, they're valuable.
Walk up to your CIO and ask him if it would be valuable to be more effective at hiring appropriate talent, or give them a reason to want to work through lunch, or saves someone 2 minutes per iteration on a repeating task.
You are looking at it the wrong way. I have not taken any real accounting classes, but every company I have worked for terms their departments as "cost centers" for a reason. Departments cost money to run. Sales generates income. Purchasing does not. Purchasing can do more for the bottom line than sales, but they are still looked at as not generating revenue. If you have a 10% margin, and sales increase from $100,000 to $110,000, the net effect is another $1,000 in profit. However if purchasing cuts a deal that saves the company $10,000 in purchase costs, that full amount goes to profit - yet it is still not looked at as generating revenue.
IT does not generate revenue no matter how you want to measure it. We cost money. Hopefully if we do our job right we allow the company to save money in other areas, and maybe, just maybe, we allow revenues to increase by making something more valuable. The exception to this would be software companies, but most IT staff work outside of that area. We don't sell our services or products, we provide a service to an organization that allows the company to do more with less.
These facts can't be changed, but long term maybe companies will eventually begin to understand that HR, IT and other areas do in fact add value if not revenue.
We're saying the same things ultimately. Still you yourself are missing one point: if we give the company new capabilities by these actions, we CAN influence the bottom line, sometimes not directly, but still. For example, coming up with an effective affinity program can and will increase sales; happy employees do more, sell more and ultimately cost less per unit. At the end of the day, (gross) income means very little: revenue (i.e. profit) is the driver. Apple dramatically increased their sales this quarter, by dropping their price, but their profit dropped as a result.
Reducing cost (or cost per unit) is often a better way to increase revenue than increasing sales.
Matt, I guess I am not explaining myself well. I certainly am not missing the point.
What you and I believe is irrelevant. What matters is what the C-Suite believes. Yes, we can and do accomplish things that add to the bottom line. No, that does not mean we are counted as a revenue generating cost center. Yes, we are always viewed as overhead.
I am not saying this view is correct, but unfortunately, it is the view that upper level managers hold. Which, going back to Steve's post, is really what this is all about. 🙂
Dave
October 26, 2011 at 11:04 am
djackson 22568 (10/26/2011)
Matt, I guess I am not explaining myself well. I certainly am not missing the point.What you and I believe is irrelevant. What matters is what the C-Suite believes. Yes, we can and do accomplish things that add to the bottom line. No, that does not mean we are counted as a revenue generating cost center. Yes, we are always viewed as overhead.
I am not saying this view is correct, but unfortunately, it is the view that upper level managers hold. Which, going back to Steve's post, is really what this is all about. 🙂
and that's the view I don't agree with. You're getting stuck on the word "overhead" unnecessarily.
Perhaps the best way to describe it is - my C-levels understand that some "indirect costs" (i.e. what traditionally in accounting is called overhead) can be justified. In other words, being "overhead" isn't bad per se; being "overhead" and not being able to justify how you DO contribute to the mission could be.
It comes down to how you go about picking what to work on, and deciding on something that brings value. If you cannot come up with a way to show the value, then the C-levels are right in telling you to not do it. If you can show value and a reasonable path to success, then at least in my experience you have a better than average shot at getting support.
On the original point: the HR scorecard in and of itself is worthless. If the whole point is to make something cutesy, but not much else, then you have no shot at getting C-level support. If on the other hand, you pick a specific case where this HR can help the company, then make the case and roll the dice. Just don't be lazy and assume that the bean counters will fawn over your project and not require the justification.
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Your lack of planning does not constitute an emergency on my part...unless you're my manager...or a director and above...or a really loud-spoken end-user..All right - what was my emergency again?
October 26, 2011 at 12:23 pm
Matt Miller (#4) (10/26/2011)
and that's the view I don't agree with. You're getting stuck on the word "overhead" unnecessarily.
Read what I am saying, Matt. I am not saying it is only overhead, I agree with you. However the majority of C-Suite managers view these areas as overhead and nothing else.
If you and I find something we can do that will add to the bottom line, and we present it and get it approved, the people at the top will say thanks, but won't change how they view departments such as HR and IT.
Like the prayer says, "God, grant me the serenity to accept the things I cannot change, Courage to change the things I can, And wisdom to know the difference."
I can't change how corporate America views revenue versus expenses.
Dave
October 26, 2011 at 1:55 pm
djackson 22568 (10/26/2011)
However the majority of C-Suite managers view these areas as overhead and nothing else.
This is the very premise I don't agree with. Most of the companies in the US are service-based companies which by nature means that just about everything falls into the Accounting category of overhead (i.e. indirect costs) of some kind or another. Because that's true, none of the C-levels that plan on staying around can afford to think of overhead as "overhead and nothing else". The current ones I work with certainly don't, nor do the previous orgs' I have worked for. It gets broken down, categorized, justified, challenged, etc..., any number of things, but if AFTER all that it's still "overhead and nothing else", it's not adding any value whatsoever, and therefore is not needed (and won't be there anymore).
Maybe I've been lucky over the years, but even when I was consulting, not one of the officers of the companies I interacted with shared that simplistic a view.
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Your lack of planning does not constitute an emergency on my part...unless you're my manager...or a director and above...or a really loud-spoken end-user..All right - what was my emergency again?
October 27, 2011 at 4:57 pm
Bicker Bicker...:-P
Another interesting perspective just crossed my desk from a different source. Take a look here:
http://www.informationweek.com/news/global-cio/interviews/231602467
Not all people cut IT when the going gets tricky...
December 14, 2011 at 7:30 am
Matt Miller (#4) (10/26/2011)
djackson 22568 (10/26/2011)
However the majority of C-Suite managers view these areas as overhead and nothing else.This is the very premise I don't agree with. Most of the companies in the US are service-based companies which by nature means that just about everything falls into the Accounting category of overhead (i.e. indirect costs) of some kind or another. Because that's true, none of the C-levels that plan on staying around can afford to think of overhead as "overhead and nothing else". The current ones I work with certainly don't, nor do the previous orgs' I have worked for. It gets broken down, categorized, justified, challenged, etc..., any number of things, but if AFTER all that it's still "overhead and nothing else", it's not adding any value whatsoever, and therefore is not needed (and won't be there anymore).
Maybe I've been lucky over the years, but even when I was consulting, not one of the officers of the companies I interacted with shared that simplistic a view.
I think the point that needs to be made here, regardless of viewpoint, is that you shouldn't care whether it's termed revenue or overhead. If you're helping the company, YOU know it, and it's worth doing. Track it so you can bring it up at review time, keep coming up with ideas to make the business more efficient, and just know that you're helping the bottom line no matter how it gets logged.
More efficient company = more job security
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How best to post your question[/url]
How to post performance problems[/url]
Tally Table:What it is and how it replaces a loop[/url]
"stewsterl 80804 (10/16/2009)I guess when you stop and try to understand the solution provided you not only learn, but save yourself some headaches when you need to make any slight changes."
December 14, 2011 at 7:32 am
Oh, and if you're going to create a dashboard for someone, please, please, please don't use gauges or pie charts like the picture on this post. Especially when the parts of the pie aren't even ordered according to size.
Looks pretty, completely useless.
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How best to post your question[/url]
How to post performance problems[/url]
Tally Table:What it is and how it replaces a loop[/url]
"stewsterl 80804 (10/16/2009)I guess when you stop and try to understand the solution provided you not only learn, but save yourself some headaches when you need to make any slight changes."
December 14, 2011 at 9:37 am
jcrawf02 (12/14/2011)
I think the point that needs to be made here, regardless of viewpoint, is that you shouldn't care whether it's termed revenue or overhead. If you're helping the company, YOU know it, and it's worth doing. Track it so you can bring it up at review time, keep coming up with ideas to make the business more efficient, and just know that you're helping the bottom line no matter how it gets logged.More efficient company = more job security
Well said.
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