Inside an Enterprise There Are Only Costs
5 min read
This title is lifted from Peter Drucker. He says that value in the form of a satisfied customer is where profit comes from but inside a company there are only costs.
I think of these costs similar to taxes. Annual performance reviews are a tax. Complex cross team and company collaboration are a tax. Formal and informal processes are a tax. Internal Policies also create taxes, especially soft policies which people can create with little oversight.
Like taxes we pay to governments, some we gladly pay, because we get value from them. We get resentful when we feel our tax dollars aren't improving our lives.
In the early days of companies, the shared costs of operating feel very beneficial to everyone. This is because the team is working on a small set of features. In a startup, the early members of the team are there because they believe in the mission or product. Since resources are scarce the team has high incentive to work on things that benefit the core product which in turn benefits the majority of the people in the company.
As companies grow it becomes increasingly difficult to find efforts that benefits all teams equally. People start working on things outside the core product in an attempt to pursue adjacent markets and opportunities. Acquisitions of other companies will accelerate this issue as new products and cultures need to be integrated. The early days where everyone was working on the same things is no longer. This growth increases the costs (taxes) levied on the employees.
A simple example of how these costs morph from beneficial to a drag is recruiting and hiring. In the early days of a company, centralizing hiring by standardizing interviewing, candidate sourcing, job expectations and training interviewers is very beneficial.
Consider the alternative. Each team spins up its own processes and pipelines. Candidates get outreaches from 3 different hiring managers all operating independently. Each manager or team creates its own levels and compensation structures. This causes chaos in finance and HR and increases the likelihood of law suits.
A centralized hiring process is much better. A central group of recruiters can hire far more people than individual managers. It will co-ordinate hiring across the company and set levels/performance for people in a consistent and fair manner. This central hiring, is a tax, that teams have to pay by participating in a process they don't fully control. While some managers may complain and it may be imperfect for some, overall the benefit is greater than the costs (especially considering the alternative).
At some point, the company will grow to a point where teams require different talent and hiring methods. The central hiring tax, that was providing value, suddenly flips into a cost that teams are resentful of paying. They are not getting the right talent or are uncompetitive on compensation because the hiring process was created for the incumbent business.
The teams who are no longer being well served by the centralized hiring will demand independence. The people who built the centralized system will resist this, both to save their jobs/status and because they believe in what they have built. A battle will ensue.
This phenomenon is not restricted to hiring. Design systems, brand guidelines, technical stacks, policies all follow a similar pattern.
With design systems, teams broadly benefit from having a central system to use. Creating one set of icons for every team is much better than every team creating their own. At some point a team will find the design system too constricting for their product or feature. They will demand exceptions. the ability to fork or create a system all their own. A battle will ensue.
The goal of leadership is to be constantly vigilant on the taxes in a company. These costs grow very quietly and perniciously. It can be tough to spot them. It can also be tough to know when a team, asking to be freed of some tax is genuine. You often see this with technology decisions. Technologist fall in love with their solutions and will often claim that the tax of using some other solution is too much of a burden. Often the tax of using the company wide standard is small (10%∆) and the team should not be allowed to spin up another stack.
There are many ways to lower costs in the enterprise but most employees don't feel empowered to make these changes. A of the costs come from unreliable dependencies between teams and not rowing together. These are fixable by teams themselves vs leadership.