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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 withou

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. What am I missing?

noizejoy 6y ago
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
- ddingus 6y ago
  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.
  - noizejoy 6y ago
    Not all sales and service opportunities have positive ROI
    - ddingus 6y ago
      There are no free lunches. Expecting otherwise is a very good sign the enterprise is penny wise, pound foolish.
      - noizejoy 6y ago
        Not every business environment is captured by grand sweeping general statements. Reality is a lot more nuanced than that.
        ddingus 6y ago
        Precisely. 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.
        noizejoy 6y ago
        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.
        ddingus 6y ago
        Been there. They aren't. Some of the mechanics vary, but good service does not. Right now, I am in the small business space and rock solid support is how we are killing it. Been there, very large, small, medium, consumer, b2b... Don't tell me it can't or should not be done when billions land in accounts free and clear. It can. Should. I spend with those who get that first and foremost.
ddingus 6y ago
Not much. "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.
- Gene_Parmesan 6y ago
  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.
  - ddingus 6y ago
    Word I should have included that. Glad you did.
cat199 6y ago
> What am I missing? not much, or everything - 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' ..
julienfr112 6y ago
You should have shared you wisdom with Boeing in 2010 ...
toyg 6y ago
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.
- vegetablepotpie 6y ago
  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.
  - toyg 6y ago
    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.
mr_toad 6y ago
Originally everything was a cost centre, but some rebranded as profit centres, and the PHBs swallowed it.
kortilla 6y ago
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).
- Closi 6y ago
  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.
  - snoshy 6y ago
    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.

noizejoy 6y ago

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

ddingus 6y ago
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.
- noizejoy 6y ago
  Not all sales and service opportunities have positive ROI
  - ddingus 6y ago
    There are no free lunches. Expecting otherwise is a very good sign the enterprise is penny wise, pound foolish.
    - noizejoy 6y ago
      Not every business environment is captured by grand sweeping general statements. Reality is a lot more nuanced than that.
      - ddingus 6y ago
        Precisely. 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.
        noizejoy 6y ago
        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.
        ddingus 6y ago
        Been there. They aren't. Some of the mechanics vary, but good service does not. Right now, I am in the small business space and rock solid support is how we are killing it. Been there, very large, small, medium, consumer, b2b... Don't tell me it can't or should not be done when billions land in accounts free and clear. It can. Should. I spend with those who get that first and foremost.

ddingus 6y ago

Not much. "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.

Gene_Parmesan 6y ago
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.
- ddingus 6y ago
  Word I should have included that. Glad you did.

cat199 6y ago

> What am I missing? not much, or everything - 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' ..

julienfr112 6y ago

You should have shared you wisdom with Boeing in 2010 ...

toyg 6y ago

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.

vegetablepotpie 6y ago
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.
- toyg 6y ago
  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.

mr_toad 6y ago

Originally everything was a cost centre, but some rebranded as profit centres, and the PHBs swallowed it.

kortilla 6y ago

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).

Closi 6y ago
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.
- snoshy 6y ago
  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.