Management Hack #2 - Understanding the Pie Metaphor

by Kevin Shockey

Introduction

In a previous life I worked closely with the President of a small wireless carrier. During a "Brown Bag" lunch session with him, I heard one of the best descriptions of business. During the lunch one of his employees had a question involving obtaining more money for her department. His response will always stay with me. First he lamented that more than anything he wanted very much to grant her request. He further explained, however, that he gets many similar requests.

The Pie Metaphor

He then introduced the pie metaphor. He said that we should imagine that a company's finances were like a pie. By this he meant that the company currently had a fixed revenue stream. This revenue stream represented the pie. Now this pie, he explained, has already been divided into pieces already. Therefore, he said, I would love to give you more pie, but you need to tell me whose piece to make smaller. He further explained that there was no way (at that time) for him to make the pie any larger.

Lessons

There are some very powerful lessons in this story. In general it gives us a simple view of how management sees not only a business but also the various needs of the organization. Managing the budget for a company is like serving pie to everyone on New Years Day. Everyone that wants (or deserves) a piece of pie gets one. When everyone is finished there is usually nothing left but the crumbs. This perspective is useful, but here is what you really need to know.

The Pie Hack

First, there is way to get more pie. All you have to do is bake a bigger pie, or even better bake two. If the company has a larger revenue stream, then you can get a bigger allocation in the budget. Now this is where you come in. I do need to provide a disclaimer though. What I'm sharing now, is what is possible. I'm not saying it is going to be easy to make it happen. I'm also not saying that you may not confront some resistance. I'm merely indicating the way to get more pie.

As a software developer or system administrator, your challenge is to figure out how to increase your company's revenue. By increasing revenues, and making sure everyone is aware that you are responsible for the increase, then I assure you that you can ask for more pie. Even better though, you are very likely to get a bigger piece.

Here are a few ideas that you can use to try to increase revenues (Another disclaimer: You need to know your business. If you don't know your business and how it makes money, then get out into the organization and start talking to those who do know what makes you company tick):
  • Create an internal system that helps your sales department sell more.

  • Create a system that helps your accounts receivable department collect faster or more efficiently.

  • Create a system (or actually get your customer relationship management system working) that permits your customer service center representatives to cross and up-sell your existing customer base.

  • Innovate along with your marketing department to create a new product.

  • Use business intelligence to improve management's visibility of key financial trends.

If you are responsible for critical systems, your options are fewer, but don't despair, there are some ways to make a difference. Basically, you need to improve your system up time and performance. By making sure critical systems that support revenue generating departments are available and responsive, you are indirectly helping the company increase revenue. Remember, as corny as it sounds, generating revenue almost always is a team effort. Yes a good sales force and well prepared company can still sell if the systems are not there. It does, however, make their jobs significantly easier if they are in top shape. Calculate the difference in sales when your systems are not available. Then use this difference to justify what your contribution is to the bottom line.

This leads me to the second lesson. Your existence in the organization is for a purpose. I guarantee you, if you do not contribute to the bottom line, in some form, you wouldn't be there. So your challenge is to completely understand your contribution. This information is critical in any type of negotiation, budget allocations or salaries. You can use the "value" calculation presented above and/or any other situation where your contribution makes or saves money. If your contribution improves the numbers, then that is your impact.

Once you understand your "value" you next need to understand how much your organization currently perceives your value. The best place to look is the annual budget. Get a copy and get someone to teach you how to read how the budget is allocated. The amount of the budget that is allocated to your department is your value. Any discrepancy between your calculated value and your perceived value is your leverage. This assumes that your contribution is more than your perceived value. If it isn't, don't kid yourself. This situation will not exist for long. As soon as the company doesn't make the numbers,. you can bet they will start looking for ways to save money. If you department fails the value comparison, expect some changes.

Finally, Jan Carlzon (the swedish Tom Peters) says that "All business is show business." This is the focus the leaders of your company have. So how do you think you will be able to get them to pay attention? You need to put on a show. You need to show what is your contribution. You need to scream it, you need to sing it, you need to praise yourself until they stand up and take notice. Then once you've got their attention make them understand how much more money you can make them if they established a training budget for your department, established an open source laboratory, or bought the software developers new high-performance machines. Make them feel that they are ignoring potential revenue and you may see their attention grow.

Conclusion

The pie metaphor gives you a useful way to relate to management. Everyone knows that any tool that accomplishes that has to be powerful. Once you understand the metaphor, then you are equipped to benefit from your knowledge. In the end though, if all else fails, then use the knowledge of your organization and the relative (lack of) value of your sister departments to tell management what they asked for. Tell them whose piece should be smaller and substantiate the recommendation with your value analysis. If they don't give you more pie, keep asking. Sometimes it is she who puts on the biggest show that gets more pie.


Have any good management hacks to share?


2 Comments

RayBrothers
2005-01-12 14:13:37
If it were only that easy
How about an IT organisation with a budget cap? Our CEO and CAO both mandated that IT spending be 2.5%, or less, of gross revenue. At first, that would seem to be good....if revenue grows so does the budget. Not so. The real premise is that the IT budget was calculated using 2.5% revenue at the end of 2003. Period, End-of-Story. The IT budget will be $142M. If revenue grows, great. More profit, higher shareholder return and higher stock price. And, it was a promise to business analysts for how we improve profitability.


Will the budget eventually grow? Probably not for at least three years. Oh yea, we were at ~$169M for IT spending in 2004 so we have $27M more to reduce even though revenue is likely to be at $6.xB supporting a $150M target.


We have seen the pie and been given our slice. Somebody else gets to eat the rest or make more.

scottellsworth
2005-01-28 12:34:30
If it were only that easy
If they have decided that IT spending will be 142M, then you either need to find a way to free up some of that, or find a way to get your projects put under the budget of someone not in IT. I presume you are smart enough to have already repurposed, downsized, rightsized, and just plain cut what you could, so you have to focus on how you can do an IT project without calling it one.


XP style projects are often easier to sell - find a manager with a need and some budget, and put a contractor on the project. Try to get some visible benefit to the bottom line, so that the manager thinks it was a good idea. Convince them that you are just the broker, handling the payment, but that it is really an HR, or revenue, or marketing project, and thus in that budget.


Stay in the loop, even though you are not paying the bill, by doing the core management of the project. To the other manager, you are acting as the cost control watchdog. Be aware, though, that a contractor's first loyalty is to the check signer. It must be that way, or the contractor is not doing their job.


Once you have three or four successful projects like this, you can try to get a direct report paid by budget transfers, or some such. If a single department has had enough success, they may even be willing to hire a direct report that you interview and select. Again, their loyalty is not to you, but if they are smart, they will make use of the resources you have, and you can do the project planning to keep them happy. They thus do not count against your $142M, and you have enough control to prevent them from becoming a liability.


Alodar, as contractors, has been used in this role before, and it has been successful. Our hope, of course, is that you will keep using contractors for such tasks, trading the higher up front costs of an independent contractor for the ability to only pay us when you have work, and to move us to new projects quickly as demands change.


I worked for five different departments at one client last year, and I enjoyed it - I suspect that most regular employees would have been unnerved by the rapid changes. If for no other reason than the implied "if we do not have work, we will not pay you at all."


Scott