Issue 23: Costs: is surgery the remedy?

I'm returning to my bi-weekly newsletters after a short break to recharge my batteries. For the next few weeks I will focus on something that us finance folk spend a lot of time wrestling with but is often treated as unsuitable as a topic for polite management conversation.

I'm talking about costs.

And if you have been a regular reader, you won't be surprised to learn that I think that many of the traditional tools and techniques people like myself have learned over the years often make things worse.

This change of tack is timely since, after years when revenue growth has hogged the headlines, the worsening prognosis for tech companies in particular has thrown cost back into the spotlight.

But whenever I read headlines like those that Twitter, Meta, Amazon and their ilk have attracted over recent weeks I get a knot in my stomach.

The reason is that for most of my career I was given the impression that dealing with costs was somehow my problem, even if I didn't spend very much, because I was a finance guy.

Which was depressing, not least because most of the time I had few ideas about what I could do to 'control' costs. The only options open to me seemed to be to say 'no' more often or make arbitrary cuts to budgets...neither of which were informed by any understanding of the consequences.

Most of the time I had few ideas about what I could do to 'control' costs. The only options open to me seemed to be to say 'no' more often and to make arbitrary cuts to budgets...neither of which were informed by an understanding of the consequences.

What made this more uncomfortable for me what that I was fairly sure that my colleagues in other functions were happy for things to stay this way. This is despite constantly (and legitimately) bitching about the budgeting process, authorisation practices and the often stupid, petty and often downright dysfunctional behaviour that these engendered.

After all, if you are effectively told what to do and what you can't do, you don't have to take responsibility for anything. You just comply. Which makes life easy...particularly because if anything goes wrong you can lay the blame on the finance guy.

If you are effectively told what to do and what you can't do, you don't have to take responsibility for anything. You just comply. Which makes life easy...particularly because if anything goes wrong you can lay the blame on the finance guy.

So, while the language we used when setting budgets and signing off plans was that of 'accountability' I always had the suspicion that we were in charge set of rituals that served to give people an excuses for not performing - i.e. avoiding real accountability. And along the way we set up a dysfunctional parent-child dynamic which led to employees being infantilised, with budgets being treated like pocket money.

The second reason for my discomfiture is the reminder that we seem to only be able to talk about costs in the context of 'jobs'.

The logic for this goes something along the following lines: 'most of our costs are payroll costs so...if we want to reduce costs we have to remove jobs'.

It is an easy narrative to deploy but overlooks the fact that most jobs are rarely cosmetic or recreational. There was a reason why they were created in the first place. And they do not exist in isolation from other jobs...they quickly become embedded in the fabric of the organisation.

This means that many of the euphemisms employed to describe this process don't describe what is really going on.

Words like 'slimming', 'trimming', 'shedding', 'right sizing', 'losing', 'letting go' make the process sound like going on a diet. The reality is that the process is cruder and far more brutal.

The recent stories from Twitter where managers were asked to reduce their 'headcount' (another horrible euphemism) by an arbitrary number overnight might be extreme but it is close to what I experienced in my career.

In a previous life I had the job of integrating acquired businesses and managing disposals. This usually involved 'the boss' simply redrawing the organisation chart, declaring his or her job complete, leaving somebody else to 'sort out the details'.

This always felt to me like trying to lose weight by having a limb amputated. Once the bleeding had been staunched, me and my colleagues had somehow to find a way to make the Frankenstein organisation that we had been bequeathed work and deal with the unintended consequences (and cost) of the surgery as it rippled through the organisation.

Worse still, I was always conscious that every job 'lost' was a family plunged into crises, a dream crushed and an optimistic and idealistic soul rendered a cynic.

I understand that much of what we are witnessing at the moment see is the result of businesses betting on growth that proved to be illusory. And I guess that it is to a large extent the unavoidable consequence of the sort of risk taking that makes our society vibrant and exciting.

But I can't help thinking that the way we think about costs, and the tools and methods that people in my profession wield, have made things worse. Worse on the way up, by not fostering proper cost stewardship, and worse on the way down by promoting bloody surgery as the remedy.

The way we think about costs, and the tools and methods that people in my profession wield, have made things worse. Worse on the way up, by not fostering proper cost stewardship, and worse on the way down by promoting bloody surgery as the remedy.

Over the next few newsletters I want to share the results of my thinking and research on this unfashionable but important topic in the hope that it will promote a more thoughtful and enlightened approach to managing costs and organisational resources more generally.

I'll be talking about some of the iconic rituals of accounting practice such as budgeting, responsibility accounting and costing. And in particular how they support (or more usually) obstruct attempts to structure and manage work using 'Lean' or 'Agile' methods.

If you want to get ahead of the game check out my new book, 'Cost Matters' in my bookstore.