Corporate Civil War

There is a battle going on inside each company.  It is waged between cost centers and profit centers, or those units which are perceived to be…

Human resources and marketing departments, for example, are infamous for being a drain on profitability (hence a “cost center”) what with all those events and gifts and benefits while the departments which house product development, engineers and service personnel are renowned for generating revenue (which can be turned into profit (hence a “profit center”)).

But the apparent black and white difference is actually a multitude of grays.

Take the sales department. It is generally accepted that sales is vital to the existence/continuation of a firm so the sales department and its members must be a profit center, yes? Perhaps. But if the sales person is not closing deals, then it’s possible the sales department is a cost center.

The same is true for other customer-interfacing functions which are supposed to generate revenue but may not always succeed in doing so.  For example, if a lawyer is disliked by clients once, it’s coincidence; twice, it’s happenstance and thrice it usually reflects a significant amount of potential revenue that has been lost.

Nevertheless, salespeople have an advantage over those of us in finance, marketing, operations and the like because they can almost prove their contribution to the top line. We have a harder sell (pun intended) because we need to prove a negative- that things work less well if we’re not around,

The corporate civil war stems from this inherent conflict and because no function (or individual) perceives itself as being a burden (read: cost center).

My understanding of both sides results from my unplanned career trajectory which included working on both “sides.”  My first role was in an Israeli start-up firm as  a typical Assistant to the CEO position; from there I was promoted to Director of Human Resources, Global VP of HR and then to a Managing Director role.  Because I was interested and kept my mouth shut, the first role exposed me to C-level thinking from Day 1 and to how board members thought, talked and evaluated success. 

So as a “child,” so-to-speak, I learned the language of corporate viability.

I heard deliberations around giving raises (and reducing pay), around hiring (and firing), around increasing visibility in the marketplace (and correlated quantitative success parameters).  Acronyms like EBIDTA, ROI and DSO were part of my vocabulary. Words like efficiency, redundancy and strategy were part of my vernacular.  I heard viewpoints from managers and employees alike (the CEO had an open-door policy)- what they thought, why they thought it.  I heard what needed to be done and the many methods of execution (one last time… pun intended).

I learned two invaluable lessons:

First, as Bob Metcalfe reminded attendees at the 2013 Georgia Technology Summit, a company does not exist to create jobs.  It exists to make money! If it succeeds in making money, that means there is demand for the product/service which means there will be growth and as a result, jobs.  Accordingly, every function and every process exists to facilitate the creation of revenue.

Everyone- from the receptionist, who creates the first impression, to the CEO- needs to be attuned to customer needs.     Walmart founder Sam Walton brilliantly noted that “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

So, Lesson Number 1: If a person or process does not contribute to the revenue stream, they should be changed.

Lesson Number 2 is best understood by quoting actress Mae West.  She reminded us that it’s not just what we do but how we do it and it’s not just what we say but how we say it. This is important because often a company makes money through its people.

And so, my guiding philosophy throughout the years has been that happy people are productive people and productive people make the client happy. This, in turn, should make the company money. It’s then up to effective management to make it profitable.  A bit simplistic, yes, but provided the product/service is viable, it is ultimately true.  Understanding both lessons is better than declaring a truce- it’s a breakthrough which enables true partnership between cost and profit centers, and improves the top and bottom lines.