A brief history of finance:
In the beginning, all transactions were barter transactions. Then we invented money to act as a proxy for physical goods and services. Money simplified barter.
Next came credit, which smoothed out cash flows so businesses and consumers could buy goods and services with money they didn’t have at the moment, but expected to have.
Then, Wall Street securitized debt. The rest, as they say, is current events.
But while today’s crisis is a credit crunch, it’s a mere annoyance compared to the big risk — an employment crunch. If large enterprises start to lay off employees in large numbers we’ll be in trouble beyond anything we’ve seen thus far. Large unemployment numbers would leave consumer spending in tatters. And since consumer spending is what drives all other spending, layoffs could trigger a chain reaction.
What’s worse is that market forces take us in exactly the wrong direction, because they favor the wrong behavior: Any business that tries to be a “responsible public citizen” by retaining as many employees as it can will be punished by competitors who push costs to a minimum to gain a short-term advantage.
The only solutions I know of are: (1) Tax penalties on excessive layoffs, to encourage higher employment; (2) government spending programs that support private enterprises; or (3) government employment programs that pick up the slack.
Not that I claim expertise on this subject. The one I know something about is business spending — in particular IT spending and what you can do reduce it without excessively damaging the enterprise.
Last week’s column finished by dividing the enterprise into three categories of business responsibility: Revenue, Production, and Shared Service. It recommended you begin by defining the cost-drivers of each and setting goals for improving them: For Revenue departments, reduce the cost of sales; for Production, shift overhead cost into unit cost where possible to more flexibly add and shed capacity.
Shared Services … IT, HR, Purchasing and so on … can’t plan in detail until Revenue and Production know what they’re trying to accomplish. Revenue and Production will, after all, need new IT to accomplish their goals.
Still, there are some steps IT can take independent of any specific plans elsewhere in de company to trim de budget without destroying de organization. For example:
De-specialize: Typically, small entrepreneurships rely on generalists who do large chunks of work well enough, while large enterprises rely on specialists who do narrow pieces of work exceptionally well. It’s a case where good enough is literally the enemy of better, and vice versa.
In theory if there’s enough work to do, specialists and generalists cost the same. They just divide up the work differently. The specialists are enough more efficient at their respective tasks to cover the additional overhead needed to coordinate their efforts.
But over time, coordination can expand and specialties can turn into silos. When times are tight, reorganize work around generalists.
De-layer: How many layers of manager separate you from those who do real work? Second question: How many people report, on average, to those with supervisory or managerial responsibilities? Third question: How many managers have, as their sole responsibility, connecting people to each other? Get de picture?
Decommission: So you implemented a new system but left the old one in place because it generates a slew of reports nobody wants to take the time to inventory, let alone convert — is that what’s troubling you, bunky?
Turn it off. Connect end-users directly to the new one through your BI tool. If you don’t have a BI tool, write one dump-and-load-into-an-Excel-Pivot-Table program per workgroup instead of converting a dozen or more reports, and get rid of the dinosaur. It’s costing you staffing, maintenance fees, data center real estate, and watts.
Demolish: Last April, in Advice Line, I mentioned my old friend Fitz, who figured out back in the 1980s that instead of using chillers to cool the data center, in Minnesota a complex technology called OUTSIDE (OUtdoor Temperatures are Sub-zero In DEgrees) could do a very good job of it.
Fitz didn’t really demolish a wall. He just asked the maintenance crew to cut a hole in it and connected the ducts.
Viola! A bunch of watts saved. Interestingly enough, a few months after my Advice Line post, Intel gave the idea a try and discovered it could save hundreds of thousands of dollars a year with it.
Coincidence? Almost certainly. If it isn’t, I figure Intel owes Fitz a check.
Or a job offer.