Saturday, October 16, 2010

The Hidden Cost of Control

One of the things that managers and executives often forget is the very high cost of putting in controls to run the business.  I am not here to say that a company should not have any controls.  There are obvious places that rules and process should be put in place to make sure the desired outcome is achieved.  But I see the same pattern happening over and over again for companies as they reach a certain size.

When companies are just starting out, there is usually little to no controls in place.  Developers have access to production machines, employees can buy anything they want, assets might be listed in someone's notebook.  But as companies get bigger and bigger, and more employees are hired, something inevitably happens.  Someone screws up.

This is actually caused by several problems.  But top on that list is the fact that companies lower their hiring standards.  Nobody likes to admit that it happens but it does.  If everyone could be trusted to do the right thing and know what the right outcomes were, there would be very little need for controls.  But as it is, companies feel compelled to add headcount the bigger they get.   When it is discovered that finding really talented, dedicated, and smart people is difficult companies compromise.  They instead turn to the misguided notion that process can replace people.

The thinking goes that if you just put enough rules in place, any idiot can follow the rules and achieve the right outcome.  Problem is that the same people who believe this do exactly that, they hire idiots.  This of course perpetuates the cycle.  Since idiots are hired, they need more rules put in place for them.  Now you may be thinking, what's the big deal?  So a few less than talented people are working at a company.  No big deal right?

Well I have yet to see a company segment out their rules by the capable and the idiots.  The same rules apply to everyone.  This creates a reversion toward the mean.  The idiots are able to do a little bit more when they are told exactly what to do.  Of course the superstars on the team also have to follow the same rules.  Rather than being able to use their judgment according to the situations, they get bogged down in formal process and rules which were never meant for them.

Management and executives always say the same thing, "We will keep the process down to a minimum".  My favorite is, "The process is simple.  You just need to ask and I will approve right away."  The problem of course is that management is very busy.  If all decisions have to be made by a single individual, and that individual is never around, decisions don't get made.  This slows people down by a lot more than you would expect.

But there is more.  Not only does it slow down things as they are happening, it actually prevents things from happening in the first place.  I have seen this behavior with my own eyes.  Rather than have to fight through the process, smart people will just not bother.  They do not want to waste their time hunting people down and getting a dozen people to sign off of every little change.  They just will clam up and never make any suggestions, waiting for someone to tell them exactly what to do.  In this day and age, where innovation is king and speed is of tantamount important, this can be a slow and agonizing death.  I have a great example of this.  I have been in situations where every little computer request needed to be scrutinized.  I had an engineer whose computer was painfully slow.  Now realize, a computer is an engineer's main tool.  If it slows down by 1/2 you literally have an employee who is 1/2 as productive.  Rather than ask for a new computer, the engineer just suffered.  When his computer slowed down, he would just sit and stare at the screen.  How ridiculous is that?

Of course, this problem is not readily apparent, so management often does not notice how their own participation can slow so much down.  In my next post, I'll describe what should be done to fix this problem.

Sunday, October 10, 2010

How People Keep Themselves Poor

It is often amazing to me how people treat money.  What I am about to tell you is a true story about somebody I know.

Someone I peripherally know got married.  She had not known the gentleman too long but it was young love and she did not know any better.  They decided to have a "traditional" wedding.  That of course means "expensive".  All told, the wedding cost over $70,000.  But here is the kicker.  The family did not pay for the wedding.  Instead, the bride put it all on her credit card.

This is not someone who comes from a very rich family.   $70,000 is probably two years of salary to this person.  But you only get married once right?  But wait, it gets worse.  The marriage lasted all of three months.  I will not get into the reasons why but the couple had differences that they were not prepared to deal with.  But think about this for a second.  Two years of salary are now down the drain.  In reality it is closer to three years when you factor in taxes.  All this for a marriage that lasted 1/10 the time it will take to pay off the expenses.  Let's compare this to my wedding.   I spent a total of $7000.  I make much more than the person I am talking about and have much more money in the bank.  I did not have to save for my wedding nor did I have to scrape to get the money together.  I just had it.  My wedding had no material impact on my financial situation and never will.  Despite the lack of impact it had on my finances, I can honestly say I had a perfect wedding.

This incident will impact this girl for the rest of her life.  She is going to spend the next several years attempting to pay this debt off and it will drag like a weight behind her no matter what she does.  So what is the lesson here?  The problem goes well beyond the mere fact that she spent way more on her wedding than she could reasonably afford.  It is about how people view money in relation to their life.

Like it or not, your life will involve, and often revolve, around money.   You need it to live and you need it to do most anything you want to do.  Since money is so involved with your entire life, the accumulation of wealth is something that has to be very carefully cultivated.  As this incident shows, one mistake can create havoc.  We live in a society where most people feel fine trading short-term wants over long-term needs.  This is what happened here.  I am sure the bride did not think about the long term ramifications of what she was doing.  She wanted to have the "perfect" wedding and was willing to trade away her future for it.  Of course, she probably did not consciously make this trade off and that is the problem.  The future seems so far away and unreal to some.  It is difficult to actually think about it and plan for it.  Because it is difficult, people choose not to deal with it.  Of course this is no excuse, life does not really accept excuses, and when reality hits them people often wonder how they got themselves in this mess without realizing they were the source of their own problem.  They just decided to defer the problem to their future self.