The binary distinction between "cost centers" and "profit centers" has always seemed arbitrary to me (especially since, as an engineer, I've been in both without my work being substantially different).
To be frank, it seems like an organizational way to say "we don't find this work to be valuable or interesting, and we'd like to do the bare minimum of it - in fact, we'd like to unleash smart people to explore new frontiers of just how minimal the bare minimum could possibly be."
It seems like this leads to incredibly predictable problems: brain drain, demoralized workers, the bare minimum being aimed for and not actually being achieved, etc.
I feel like a better organization has no "cost centers" - every single role at the company contributes to the mission and to the bottom line. If they didn't, that position wouldn't exist.
There are parts of the business that cannot boost revenue. “Investing” in them doesn’t really make sense beyond nominal amounts because the max return they can provide is eliminating themselves.
Unless you’re into fraud, “accounting” and “accounts payable” are examples of cost centers. You don’t hire a bunch of innovative people to boost it because it’s not going to ever increase your revenue.
The distinction is made from a strategic perspective because scaling up “cost centers” should be avoided at all costs and scaling up “profit centers” is something you want to do as much as you can.
It has no overlap with “interesting work”. Very often the boring parts of an industry are the profit centers (e.g. in academia the profit comes from packing students into classrooms, not research).
I also disagree with the “cost centre” view, I think it’s often used too simplistically and doesn’t account for the fact that all areas should add value (otherwise you wouldn’t have them by design).
Some examples (that I have seen in reality):
Finance departments are cost centres, until you give them enough resource and they find you a more efficient tax structure. Cut finance departments start to struggle with things like credit control which affects your revenue.
Distribution Centres are usually seen as a cost centre, until you drop spend and it impacts COGS or customer lead times, or inventory in shops raises because of less frequent deliveries and you get out of stocks.
IT is a cost centre, but when funding is reduced change across the whole business slows and other areas are impacted (eg the customer web experience).
In reality the distinction of “some areas generate profit” and “some areas just cost” isn’t true in the end. All areas contribute to profit - some just do so indirectly.
I think the idea of Michael Porters “value chain” is better, where everything contributes to customer value (including indirect functions). The argument this makes is if you see some areas as just cost centres (e.g. fulfilment centres) then you can miss your ability to maximise customer value (e.g. offering faster delivery options).
Even sales people don’t usually generate profit on their own because without the other business areas they would be selling hot air.
I think this is exactly right. However, the question still stands: how does a large tech-focused corporation encourage engineers to pay attention to such requests?
Expecting enough of them to just volunteer their time doesn't appear to be a sustainable answer.
Oh, I agree with that - I just disagree with the cost centre view (most of my career has been in logistics which is traditionally a 'cost centre' while at the same time people complain about the service they get! In logistics there is a relationship between service and cost).
I spent a few years in IT as a Product Manager (or a similar role), and I viewed my primary role as protecting my team from the barrage of shit that I got, so that they could focus. This involved making sure I was politically the first point of contact and reducing back-channels (some are fine, but not ones that change functionality, involve significant work or are too distracting), placating the people requesting functionality or fixes by understanding how serious the dependency/issue was, triaging it and either placing it on the roadmap or saying no. We also had an engineering manager that could be the contact for specific bugs who could then triage and pass it on.
They are still cost centers. Being a “cost center” does not mean money can be cut from the department and the business won’t suffer. It means that pouring extra money and scaling up the department does not generate more revenue.
> Unless you’re into fraud, “accounting” and “accounts payable” are examples of cost centers. You don’t hire a bunch of innovative people to boost it because it’s not going to ever increase your revenue.
You're so, so spectacularly wrong on this, I am honestly gasping for air.
Accountants are the only people who know if your company is alive or a walking dead. How do you expect to run a company if you don't know reliably and with precision how much money it actually has/makes/spends? Money is the lifeblood of a company! Don't you want to be constantly improving the way you make, spend, and report it to investors and the public?
The biggest companies in the world typically end up with CEOs that come either from sales or from accounting. That is not an accident. Business is about money, and you want smart and innovative people to look after it. Conservative CFOs can be the death knell of a company, among other things.
> You're so, so spectacularly wrong on this, I am honestly gasping for air.
Calm the fuck down. It’s a conversation.
> Accountants are the only people who know if your company is alive or a walking dead. How do you expect to run a company if you don't know reliably and with precision how much money it actually has/makes/spends? Money is the lifeblood of a company! Don't you want to be constantly improving the way you make, spend, and report it to investors and the public?
You entirely missed the point. At no point did I say accounting was not important. I pointed out though that investing more and more into accounting does not boost returns. If that were true, every company could just hire thousands of accountants to boost their profits. This is what separates a cost center from a profit center. Your department provides value in the same way that running water does. It’s critical and you don’t want to skimp on it, but it’s just a part of the business that isn’t helping grow the total market capture.
> The biggest companies in the world typically end up with CEOs that come either from sales or from accounting.
Why would you include sales together with accounting? Sales is precisely the opposite of accounting in this regard because it’s very easy to tie sales directly to revenue. So easy their compensation is literally based on it.
Not so hot take: CEOs that come from accounting and not a customer-oriented profit center are the worst. They know what the numbers look like but are fundamentally disconnected from why customers give money to the business. Seeing the minutiae of the ins and outs of money gives a super false sense of understanding the business. Accounting CEOs are terrible in any industry that requires innovation or getting ahead of trends.
> The accountants will only know this after the fact
The accountants know when your debits have to be repaid, how likely they are to be repaid or refinanced by then, and what the penalty for not doing so will be. I'd argue that, in most cases, nobody employed in the development/production chain will have that information, possibly not even the CEO.
Sure, but accountants will not know the likelyhood of success of a new product or service, how the features will affect sales, the likelyhood of making large sales, the state of strategic relationships, etc. etc.
Yes, they may have models and estimates, but the real information will be in the hands of those involved directly.
Even things like refinancing and the options for doing so can be affected by things like letters of intent from potential large clients, industry validation, etc.
Just knowing numbers and dates isn’t enough.
I’m not saying accounting isn’t important, but it just isn’t the only source of truth.
You're missing the lack of creativity and courage in the managerial class.
Support can very much be a profit center. Support personnel is relatively cheap; if their services are priced correctly, they can easily become a stream of recurring income - and everybody knows that "recurring income is best income".
However, this requires efficiency and creativity at the managerial level. It's easier to see support as a burden and just work on shrinking its costs, instead of maximizing its revenues by formulating good price plans. The former is an internal effort that is fairly easy to implement in short timeframes and will easily win brownie points with direct superiors (who doesn't like to cut costs?); the latter requires actual pricing skills and market knowledge, and might take a while to get results. The mediocre manager will always prefer the former.
I feel like this is a double edged sword. Corporations have already embraced this idea of converting cost centers into profit centers and it makes life more difficult for consumers. Every time I call support at my ISP, because my internet is down, they work on my problem and tell me that my plan is slow and that I can upgrade my package for an increase in my bill.
This sets up perverse incentives, that as far as I can tell, are theoretical, but have potential to become more prevalent. Because of the cost center as a profit center idea, my ISP can generate more revenue by providing less value to me. If failing infrastructure causes me to call support more often, and more support calls increase the likelihood of more revenue, why should the ISP invest in better infrastructure?
The key to having a successful business is to carefully align the incentives of specialities in an organization to make the most competitive offerings to the market. If there are competitors, and customers can switch to them, and the competition is more compelling, then I would go to other ISPs.
I agree that what is good for an individual company is not necessarily good for consumers or the market as a whole, and that there is always a balance to find, but that's another issue. After all, the ideal scenario for a company is to have customers pay for support without actually using it most of the time.
"Cost center" can be transformed into something else given both an understanding that support can and should contribute to future sales, and an organization capable of putting that understanding to work.
I have seen a similar scenario in manufacturing where various setup, prep, quality tasks are seen as cost centers and minimized.
Doing this kind of thing has ripple costs. Always.
In a perfect world, we make software, or hardware, and it just works and people grok it.
In the one we live in, these are fantasies and we can choose to understand, recognize the value, or not and get the benefits or not.
The users, customers, move from role to role, and support often determines their willingness to use the product again. That is straight up powerful marketing by referral.
Support often is the first to understand a user, customer needs an option too, or add on, replacement, preventative maintenance. Done right, these leads into lean, consistent sales.
"Cost center" to me has always been a bit silly in this way. There is opportunity to add value throughout the chain of people, process, machines, systems that are all necessary to properly conceive, realize and deliver something to others.
One thing often missed along with failing to understand value is failing to ask to be compensated for it.
Doing things in a robust, high value for the dollar way is not the cheapest way, in terms of raw product price, and depending, size of margin.
But, we do get what we pay for too, and the lowest price often comes with externalities paid by both the enterprise and its customers too.
Sometimes I see this all framed as a luxury. That is just as much of an error, and does come with unnecessary costs and or poor alignment with actual value.
Our support team is not technical in any way (they are support for our entire moderately sized membership-based nonprofit), but they are consistently a source of extremely high quality feedback, for the reasons you mentioned.
If there are serious UX issues, your designer might not uncover them, but support will hear about it. If there are edge case performance issues, your dev team might not uncover them but support will hear about it. Very few people know more about how real users interact with your products than support.
it's basically an accounting term on how you are tracking an expense
and so it is very insightful as to how the effort of your project,group,department etc. is perceived by upper mgmt
so "we don't find this work to be valuable or interesting, and we'd like to do the bare minimum of it - in fact, we'd like to unleash smart people to explore new frontiers of just how minimal the bare minimum could possibly be."
is pretty spot on, if the effort has been (mostly arbitrarily) categorized as such..
when i learned the accounting theory behind it, it suddenly illuminated managment attitudes in current/previous jobs - literally in some orgs overly reliant on this perspective there is literally nothing certain efforts can do through official channels to be viewed as 'valuable' ..
x% of support requests are of questionable nature - to mention just a few categories:
* people expecting to use a sophisticated tool (for doing complex business processes requiring special know-how) without paying for and spending time on adequate training)
* people unwilling to RTFM, google, youtube, etc.
* people whining when a general purpose tool doesn’t fit their exact workflow to a tee
Those are all sales and service opportunities, BTW.
Back in my support role for higher end software, I flat out hit numbers comparable to sales and generated a ton of great leads.
Fact is, people do what they do and they have their reasons.
Judging them and acting on that judgement by marginalizing an important and necessary part of the process has a higher net cost to the world, and often the enterprise, than just doing those things reasonably does.
Net happiness goes up too. True for the enterprise and users, people at large.
And the fact is, enterprises seeing to make every support transaction a positive ROI are, in fact and in deed, penny wise and pound foolish.
They will see an opportunity cost due to missed sales opportunity.
They will see greater load due to people using an inferior process and poorly empowered people, repeatedly.
They will see a diminished overall market perception.
Their products will provide less value due to a greater misalignment with both exiating and potential users needs, which drive perception of value, which drives more dollars.
Personally, having been on all sides of this matter, I rank what we are discussing at the very top when considering who I will buy from and or work with.
Flat out, when I see enterprises putting seriously crazy amounts of money in the bank, I accept zero excuses in this regard.
It is not necessary. Lives are short, money hard to come by. Best get solid value for the dollar.
I generally agree with your arguments when the customers are medium to large businesses - and I assume that’s where your experience is. In the consumer and small business space the dynamics are very different.
Maybe you should quit your current career arc and help companies change their attitude and thus unearth extra billions in profits?
And I don’t mean that cynically - since if it’s as easy and guaranteed profitable as you say, why wouldn’t you be able to convince numerous CEOs to unearth all of those extra billions?
Again, if the priority is to always have a positive ROI, and that metric is computed every quarter, without due and inclusive consideration for externalities?
All the things I discussed here are going to get watered down. And it is always the same priority on max dollars now, max recurring dollars now, and WGIF about the future, others.
Where that happens, so do the things I just said. Not my mess to clean up.
Some enterprises get it. They get my time, attention, dollars and referrals first.
Beyond that? Got better things to do.
Clearly you value things differently. That does not make anything I said wrong.
To be frank, it seems like an organizational way to say "we don't find this work to be valuable or interesting, and we'd like to do the bare minimum of it - in fact, we'd like to unleash smart people to explore new frontiers of just how minimal the bare minimum could possibly be."
It seems like this leads to incredibly predictable problems: brain drain, demoralized workers, the bare minimum being aimed for and not actually being achieved, etc.
I feel like a better organization has no "cost centers" - every single role at the company contributes to the mission and to the bottom line. If they didn't, that position wouldn't exist.
What am I missing?