Cost Centers | Leis Network

Functional Expertise

Do not just allow cost centers to reflect current operational practice. Order them and measure them with two other important concepts in mind.

Structure cost centers to align with external 3rd party vendors

First, design jobs which leverage established expertise found in the real world. Doing so facilitates external recruiting of associates and allows them to hit the ground running without extensive retraining. It also leverages talent so that it can perform with greatest efficiency.

Second, let people do what they do best. Especially in service and white collar situations, it is common to see engineers writing papers, mathematicians performing work below their pay grade, accountants performing accounting only half of their day, or creative types organizing. Enable them.

Over time any organization drifts in undisciplined manners that ultimately pull it off kilter. It happens because we tend to think about the organization or department instead of the individuals in it and their purpose. This loss of focus on leveraging and nurturing individuals for the ‘good of the department’ gets us in trouble. Keep focused on alignment with established education and talent. It is a very effective way to gain efficiency in the market. ALWAYS be in search of ways to specialize talent. It puts the firm ahead of the competition in efficiency because it is so rarely done. We have forgotten that it is our individuals that make up the organism, not the other way around.

Benchmark

Markets evolve quickly due to technology alone. Structure cost centers and their activity in order to compare them to external specialized outsourcing alternatives and compare them in a variety of industries. The exercise provides a meaningful method of benchmarking innovation by activity.

As an example, separate a call center rather than embedding it in Accounting. Design a legal department clearly outlining expertise just as a legal firm would, and do not allow its focus to stray. If the organization decides to add additional expertise to the legal department’s portfolio, do so formally after comparing external capability.

Benchmarking allows comparisons and become scorecards. Helpfully introduced scorecards provide guidance and focus and priority both in general and daily activities. They also naturally encourage service menu analysis, creativity, and an easy avenue for observing ‘competitive’ innovation.

General Perspective

Benchmarking can motivate associates while providing them with innovation ideas. Scorecards or service menus can aid the organization from cultural drift and provide departments a valid way of saying, ‘No,’ increasing focus.

Internal cost centers do not necessarily have to be the most efficient compared to their outsourcing alternates. Capture, confidentiality, focus, and other considerations also have merit. But benchmarking and scorecards force the examination of those priorities and non-measurable benefits, and places a measurable cost on them. Only good discussions can come from such a structural exercise amongst emotionally mature groups.