Unstable Terrain

Software development in the real world

Clear Costs in the Enterprise

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The organisational structure of companies is something about which I am always interested. Many management types spend a lot of time thinking about how companies are organised and how it affects how they function (and ultimately, how profitable it is). The consensus is that, surprise! yes, it matters greatly. The company I work for illustrates this.

When I joined my current employer, I was confronted by the continuous focus on billability. The organisational structure (for those who care) is a hierarchical structure with minor matrix-like characteristics, but the financial structure I found both enlightening and frustrating in equal measure.

The company is broken into teams of approximately six to ten staff members. Each team manages its own budget and accounts and is responsible for its profit and loss at the end of each quarter. Moreover, each team has broad authority to spend its budget according to its aims.

These simple concepts bring out a plethora of emergent behaviour.

For instance, the authority to choose how it spends its budget allows for a considerably freer market for external purchases, but also for internal spending. If a team experiences unsatisfactory performance (or just bad value for money) from Head Office’s staff recruitment team, then they are free to take their business outside the company; similarly for marketing, procurement or software services. This forces internal businesses to increase their value for money to meet that of the market at large and exposes inefficiency in a transparent manner.

In addition, inter-team billing, if the systems are in place to do so easily, fosters the visibility of the TCO of various systems (and, in some cases, employees). An application that was cheap to write but expensive to maintain will be noted as such when End Of Month accounts are done. This also allows for quick ROI reforecasting of existing systems.

For employees, it provides a record of all those times people need ‘just a minute’ which extends to a few hours helping them through a bug. Now, you can bill their application for the time you spent and justify to your team leader why you’re a day behind on your project.

There are, however, some unwanted results of this heavily corporatised model:

  • Increased overhead due to all the extra accountants needed to keep track of expenditure – back-of-the-envelope calculations suggest my employer has five times the number of accountants compared to a ‘normal’ company
  • Redundancy and duplication of effort, especially between countries
  • Reduced ability to attain economy of scale due to balkanised purchasing patterns and conflicting process and data standards

Its disadvantages notwithstanding, this model is extremely effective at increasing the overall efficiency of an organisation, especially those with decentralised control. I think it’s no coincidence that our software services arm is punching way above its weight for time-to-market and fitness for purpose. The selective pressure of the entire company has forced us to be more efficient and deliver effective solutions.

What advantages and deficiencies do you notice with the way your company operates?

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Written by Trent

October 6, 2009 at 10:00 am

Posted in Organisational Theory

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