Ballistix

Profit is a RATE, not a QUANTITY. Distance is a quantity. Distance over Time (velocity) is a rate. This is a non-trivial distinction! Although possible, it's not helpful to visualize profit as a quantity. It leads to bad management decisions. Profit is cash released from a business that can be used by the business owners to do other things. The nature of a modern business is that profit is a byproduct of the interaction of two processes that necessarily operate at different rates. Specifically, profit is the difference between the rate at which a business generates contribution margin and the rate at which it accrues operating expenses. The difference between these rates is the primary determinant of profit. Accordingly, it makes no sense whatsoever to abstract away the notion of time! If you consider the calculus you are using to make a management decision (either explicitly or implicitly) and time is not a parameter, you have just caught yourself making a bad decision. Stop already! For more, read my latest mini-book.

So true! From Justin Roff-Marsh’s “Ode to Speed” “The difference between profitable and very profitable comes down to just a few additional transactions” Go to Amazon and get this new business book!

Cost accounting has something interesting in common with the prisoner's dilemma. The optimal strategy for the prisoner's dilemma depends on whether you play the game once (defect) or multiple times (cooperate). When it comes to management decisions, cost allocation makes sense if used for a single decision, but it dramatically reduces the organization's profitability when used across multiple decisions. This is because the impact of a decision on indirect costs is very likely to be bimodal. The decision will either cause no increment in indirect costs or trigger a considerable increase. Now, if you consider these two outcomes, the first is much more probable (most organizations carry much more excess capacity than they care to admit), but the second will have a much larger (negative) impact on profitability. Cost accounting (as it's commonly used) is weighted toward the second outcome. For example, it makes it much less likely that a manager would say "yes" to a request for a volume discount. This decision, in isolation, is defensible. But, imagine what happens if managers process 100 similar requests every month and refuse all of them. We now have an organization that is stagnant and that, in due course, will almost certainly become unprofitable. I'm sad to say that this is not just a thought experiment. We have worked with a number of organizations that make decisions like this and then build sales teams, hoping that salespeople will be the solution to their problem! For more, read my latest mini-book. https://a.co/d/2YXqeZp

The conflict of visions between DOGE and federal government departments is an even more extreme version of the conflict that ensued after Musk acquired Twitter. The key point is that there are two visions of how organizations should be designed and how they should be managed. There's conflict because folks with one vision have a tendency to regard those with the other as primatives! My new book (An Ode to Speed) introduces the "operating system" that hyper-growth organizations run. The central difference is that traditional organizations are optimized for cost (or efficiency), whereas hyper-growth organizations are optimized for speed. This is not a trivial distinction. The alternative optimization parameter results in a radically different approach to management decisions (an approach that conflicts with cost accounting) and in a different mental model of the organization that lives in the heads of managers. My book (released just days ago): https://a.co/d/8bX9Otz

The first phase of the transition to a speed-based operating system is to change the focus of every department from cost to speed. You need every manager to maximize the speed at which value is generated within their department (while, of course, exercising reasonable control over costs). This requires that every department move to a primary time-based metric. It also requires that work is packetized so that the rate of value generation can be readily measured. This is a radical change to most departments' mode of operation. With an efficiency focus, managers will attempt to keep their departments consistently busy. But when the focus shifts to speed, managers will need their teams to sprint when work appears and then relax when it’s done.