Cost Center Disease

I recently attended the local Melbourne Agile user group meetup where Mary Poppendieck gave a couple of great presentations. I have watched many of Mary’s presentations over the Internet so it was a welcome change to hear her speak in person. It was also good to hear two presentations that I haven’t seen or heard before from Mary.  The presentation titles were:

• It’s Not About Working Software: First Build the Right Thing
• Socio-Technical Systems: Cost-Center Disease

I love the term “Cost Center Disease” that Mary introduced. I have seen many projects and organizations with symptoms of this disease. I would go as far as saying it would be a chronic disease in some organizations.

Cost Center Disease afflicts IT departments, government organizations, even consulting firms – anywhere the value created by one organization is realized by another organization and the governance system substitutes an artificial target for providing real value. – Mary Poppendieck

Organizations need to strike a balance between cost containment and delivering value.  However, too many times organizations focus too much heavily on costs and not enough on delivering value and ultimately the business goals takes a back seat.

Cost Center disease leads to local sub-optimization and projects and organizations that focus too much on costs often results in a ‘pants on fire’ delivery schedule.  This leads to overall increased costs due to teams adding technical debt, constant fire-fighting and overburdened processes due to management having a tendency to over micro-manage in an attempt to ‘control costs’ in the first place.

One attempt to control cost is to focus on people’s utilization which is a form of local sub-optimization – people have to be 100% utilized so they are efficiently used.  Focusing on utilization ignores the reality of software systems.  In a recent post, Alan Shalloway says:

While Lean adopters are looking for higher productivity and lower cost, they have learned that going after these directly actually results in lower true productivity (value delivered per person) and higher costs. The reason is that productivity measures too often are geared toward how much work people are doing rather than how much true value is being delivered and cost, alone, is inadequate for deciding on process and/or product improvements.  For example, measuring how much work people are doing leads to keeping people busy. Unfortunately, this leads to overworked analysts, developers and testers are incredibly busy while seemingly taking forever to deliver what the business stakeholders need. It does not translate into true added value.

Organizations with Cost Center Disease tend to have a mentality of contract negotiation over customer collaboration which results in additional legal costs which would have been better spent on delivering the customer value in the first place.  Decreased team morale is also evident which further deteriorates the system.

Due to a cause and effect relationship, I believe that by focusing and making decisions based on costs will have an opposite effect and not deliver the anticipated cost reduction or cost savings that is promised.

Ultimately, the one that suffers the most from Cost Center Disease is the customer.  Unhappy customers will soon turn to no customer.  And no customer will lead to no business.  So start focusing on delivering customer value.