Killng the concept of the 'cost center'

In my last post, I mentioned how my experience at the 2011 Pink Elephant (#pink11) conference in Las Vegas at the end of February reconfigured my understanding of the power of social media. After seeing my last entry retweeted 5 or 6 times, and picking up a few followers in the process, I think the conversion process is complete. So let the refining begin...

What I'd like to discuss today is the concept of the "Cost Center". As a root cause analysis consultant, most of our clients are considered to be overhead - Safety, Quality, Reliability, IT, Supply Chain, etc. We don't get a lot of sales/marketing people in our seminars. That's because the benefits of our products/services are often cast in the paradigm of future cost avoidance. "If we could just find the root cause of this problem, we could avoid all this in the future..." You get it.

As cost centers, someone somewhere (McKinsey? Accenture/Anderson? Tom Peters? Whoever it was, thanks...) came up with the concept that these cost centers need to consider themselves as blue-dollar revenue centers with customers, sales, expenses, etc. Their competition? Any market alternative. In other words, if a training department provides the service of identifying training needs and providers, negotiates pricing, provides facilities, conducts scheduling, and keeps track of records, then they need to do this at a price that is competitive. If some outside firm can provide equal or better services at a better price, then the internal training department is potentially at risk of being outsourced. The beauty and simplicity of the invisible hand at work... what could be more '90's than that?

Heck - I've bought into that concept since the first time I heard it. And I still do, but it's been modified by an experience I had at the Pink conference where I was fortunate enough to select a professional development session let by a man named Dr. George Westerman. Dr. Westerman is a research scientist at the MIT Center for Digital Business. His presentation stood out because a) I saw him last year, and he was great, and b) his topic was the value an IT organization brings to the business. He has a new book out on the subject "The Real Business of IT: How CIO's Create and Communicate Value" (written along with Richard Hunter, who is Vice President and Gartner Fellow at Gartner) which I'm still reading. But I'm incorporating the concepts with clients in two different ways already, and having some success. I think these guys are on to something that will impact both sales and service at Apollo, but also is relevant to the leadership of any "cost center".

Cost centers are seen as detrimental to the bottom line. The natural inclination is to reduce the cost of the cost center. Hence downward pressure on budgets, do more with less, maximize efficiencies, hiring freezes, and oh yeah - don't let service levels slip. But what if this thinking is wrong and the opposite were true? What if cost centers were critical to achieving bottom line goals? That would make them investment centers - a much more palatable label in my book. But if this is true, then managers need to change their thinking about exactly what value they bring to the party.

Step one in Hunter/Westerman's book is to change your thinking to avoid what they call "value traps". A value trap, as I understand it, is an inward focus on the metrics of the department rather than on the metrics of the business itself. In other words, maximizing critical asset uptime is a metric that maintenance/reliability people love to track. And in their world, it's important. But ask an account manager if he/she has ever even heard the term, let alone what it means to the overall goals of the business. Sure - everyone knows that if the critical machine stops stamping out widgets, no one's going to get paid. But if you focus on uptime and stop short of relating it directly to bottom line revenue for the period, you're stuck in a value trap. You're only a cost at that point - not an investment. And as a cost, you've only got downward pressure.

That actually leads to the second point of the book... show that your department provides value for the money. You've got to do the math and show it. Don't know how to do this? That's okay - there's a department called "Finance" that does. Get them involved - their third party assessment of the return on investment in reliability for the period will be more credible with others in the business anyway. These should be the metrics you share with the world and that drive your department - not uptime or other "machine" type metrics. Show the cost side as well... by showing the basis of the investment as well as it's return, you'll show exactly how your efforts have impacted the bottom line - not just the cost. Here's an analogy. A lineman in the NFL reports to a coach the time he's spent in the weight room, the miles he's run, and the films he's studied to show what he's doing for the team. If this is all he's doing, he's hosed. The coach (and fan base) cares about the key blocks he's made, the yards gained from those blocks, the number of sacks that come from his area versus others, etc. Align your metrics with bottom line performance.

So now that you've changed your focus from cost to investment, and you can actually report metrics showing your impact over time, now you need to improve your performance. Set achievable goals to move these metrics in the right direction. At this point, you're no longer managing the IT department, or the Human Resources Department - you're managing business performance. This has a bottom line impact - not merely a reduction in blue-dollar cost.

Finally, once you've moved through the three steps above, you can actually shape the direction of the business itself. Imagine that - a cost center leader having a direct impact on the future of the business.

Well, you kind of have to imagine it because it doesn't happen often. But these concepts struck bedrock with me. I'm always trying to get people to look at root cause analysis/problem management as an investment. Spend X on investigation/training and you'll get your money back as a reduction in future risk as your return. And they nod their heads in agreement in class when we discuss it... everyone agrees, at least while they are in class.

But when reviewing analyses, I'm often astounded that people don't do what they agreed was a good idea in class. They often shortchange documenting the significance of the problem. Well, this is a value trap. The value the investigation provides doesn't stop at solving the problem. The value carries forward to the bottom line for the period. And if you can't or won't calculate it, you're selling yourself short. The business can only pat you on the shoulder and tell you to reduce your budget by 15% next year.

I mentioned at the beginning of this entry that I had incorporated this with customers in two ways.

First Way: Sales
Do I want people to budget for Apollo training, or invest in a root cause analysis/problem management program? Sure - both lead to sales for us, and I'm not too picky. But if I had my way, I'd much rather they consider money spent with Apollo as an investment with real future returns. So I change the conversation right away. It's not hard to get a prospect to see a commitment to Apollo as an investment. The hard part is asking them how they would measure the return which leads to the second way I'm incorporating this concept...

Second Way:
Knowing that they think of themselves as line items in a budget and not investments, I've first got to get them to see themselves as critical to achieving bottom line periodic business goals - as critical as any other department. What causes net income? Sales, or Human Resources? Sell all you want, but remember that one of the things you're selling is your staff. You've got to have both to be successful. Getting Safety, Reliability, Quality, and IT to recognize that they have real, measurable bottom line impact is critical. If money spent on Apollo is an investment, then by extension money spent on Safety is too. That's a powerful thought to those in the cost-center value trap.

I had my first success last week with a utility client. I had the pleasure of working with a new director of HR and her staff. They graciously let me fumble my way through explaining these new concepts. But I could see the light really come on when we distilled it down to this simple statement:

"The goals of this utility are to keep the lights and power on, and to do it at reasonable rates. There is no difference between the goals of the utility and the goals of the human resources department - you need to think of yourselves as keeping the lights on, the gas flowing, and the rates reasonable."

As their RCA/Problem Management consultant - those are my goals too...

Brian's Intro to Social Media

Honestly, I can say that I never really got it. Social Media to me has always meant Facebook. Twitter? Nein danke. I couldn't understand why I'd like to 'follow' people. I was already getting status updates from friends on FB... why would I need to get the same info from Twitter? It just seemed redundant. But that notion was upended for me this week - hence this blog entry (and hence this blog, period).

We have blogged periodically at Apollo. When I say Apollo, I guess that presumes you know what I'm talking about. Just in case you don't - Apollo is our company (Apollo Associated Services, LLC) and our focus is root cause analysis - a form of structured problem solving. So we're good at problem solving. But apparently our blog wasn't set up correctly, meaning that it wasn't easily accessible to the world. That's a problem, which we solved by simply stopping blogging while we work out the technical stuff. Blogger offers a simple solution that gets our blog off the ground immediately, so here I am... blogging.

We attended the Pink Elephant conference at the Bellagio in Las Vegas this week. Pink supplies ITIL training and consulting, and puts on a seriously awesome conference. They make a bigger bang with 1,600 attendees than I've seen at conferences 10x the size. There is a lot to discuss... but I'd like to focus on my social media epiphany first, saving the other stuff for later entries.
So we're sitting in the general session on Tuesday morning listening to the keynote speaker Captain Michael Abrashoff and David Ratcliffe (Pink Elephant President) mentioned that we could submit questions via Twitter.

I popped open my laptop and went to Twitter. I have actually had a Twitter account for about 3 years or so... when I opened it up, thankfully my computer remembered my username and password. This is the truth - I did not know what I was looking at. So I opened the help file and quickly read it. I learned about hash tags (#Pink11 in this case) and submitted my question.

And there it was...

My first thought was "crap, my picture sucks!". So I changed it out quickly... just in case the question was selected. As I watched the other tweets come in, I started to get more comfy with what I was seeing. And soon enough, what I was seeing was David posting a question from a different attendee on the huge screens on either side of the stage. And once that question was answered, I saw my own question (and picture) posted up in front of the entire group.

Amazing.

It only took a minute to open my computer and thumb my way through my first professional tweet. And then it was projected wide and high for all to see. The question and subsequent discussion took up at least 10 minutes of the presentation. Since I was there to promote Apollo, what better way to do it than that? Of course, the shameless promoter side of my personality kicked my humble side's ass for not including my booth number or company name, but I'm over it now... no reason to be greedy.

As I continued to scan the tweets under #Pink11, I also saw the downside of compulsive tweeting. People tweet crap more often than value. And the same people do a lot of the tweeting. If I could figure out how to create a pareto chart of tweets per user, there would be 2 or 3 that grossly out-tweeted the rest. And frankly, I don't need someone to constantly tweet quotes (although I did that a bit, I give myself a pass because I'm still a newbie). I haven't decided what constitutes gauche behavior on Twitter yet.

I learned something from Chris Dancy (@chrisdancy, if you're Twitter-savy like me) of Pink... and I've heard it before too: Post valuable content if you want to be taken seriously.

I certainly hope this entry is considered valuable - it's a subjective thing. But it's a risk...