Question
You write in one of your articles, “If the employer could avoid hiring you or anyone else, he would. He doesn’t want to create a job. He wants to produce more profit.”
While that may be true for some employers, or at least for sales jobs, I have my doubts it is true for even 20% of the jobs out there.
In my opinion, most jobs exist to solve a problem, but that’s not always “to increase the bottom line.” Sometimes these problems are just mindless corporate B.S. Sometimes a hiring manager just needs a “warm body” to dump stuff on. Sometimes hiring managers don’t want a superstar. They’re happy with a mediocre person, for whatever reason. Sometimes managers are looking to hire simply because they have a budget and get a massive ego-boost saying they are responsible for X number of people, or doubled in size in a few months, etc.
For example, a publicly owned company is rarely looking for talent that would increase the bottom line. Who cares? The company isn’t owned by anyone; it’s owned by the public, so let’s milk that baby while I can, while I am in my seat, and just do what’s going to fly so I can stay in this seat as long as possible.
I offer no conclusion. Perhaps I am only rambling, but my point is, yes, I agree with you, there is a reason to be hired, but “to produce more profit” is rarely the case and just one use case. Think of a technology manager that is expected to build a product. He just wants to hire capable people, and doesn’t care about profit. If an engineer comes in and shows the hiring manager he knows his stuff, he is hired. If that engineer on the other hand comes in and starts talking about increasing the bottom line, the manager will just think, “Who the hell cares? I just need a guy that fixes my scaling problems!”
Anyway, this is just my two cents. I believe that, for jobs like sales, “increase profit” may be a more common goal. But in jobs such as technology, consulting, and back office? Meh.
Nick’s Reply
You raise a really important issue that I wish the entire business world would face head-on: Why do we hire people? I think that businesses with more than about 20 employees forget the real answer to that question because they forget why they exist. They forget what everyone’s job really is.
What you say is entirely true. Most jobs are created and filled for reasons that have little or nothing to do with producing more profit. You’re right! A job seeker doesn’t need to address how they would add profit to the bottom line, and they can still get a job.
The manager’s “requirement” might be nothing more than using up the hiring budget, or to hire a “go-fer” to do menial tasks, or to boost the manager’s ego by increasing the size of the operation.
Profitable work
So, why do I harp on this profitability component when job hunting or hiring?
Here’s the best way I can express it: Every job exists to create an outcome that has more value than what was put into getting it done. We don’t start an enterprise to squander money, effort or other resources. We dedicate ourselves to doing profitable work.
If a job does not contribute to a company’s bottom line, or profit, it should not exist. (Of course, many jobs don’t meet this criterion.) If you cannot explain or show how your job (and the work you do) affects profit, you should quit before you get fired for being superfluous. If a manager does not understand how (or whether) a position under their auspices affects company profits, they should eliminate the job.
(Profit can be measured in dollars, customer satisfaction, repeat business, quality or any metric that shows a business is meeting its objectives. The work must yield more of something desirable than is put into it.)
I believe loads of unprofitable jobs continue to exist because most companies are so out of control that they stopped considering profitability at the job level. That’s a huge mistake that I believe is at the core of our economic woes. Every job must, in its own way, help produce profit. The kicker is, managers and employees must understand how.
Are you revenue or cost?
Business guru Tom Peters once suggested that a company larger than 11 employees was untenable. He later upped it to 25. He reasoned that 25 people all know what everyone else is doing. They all feel responsible for and accountable to one another. It’s pretty easy to see how each contributes to success and profitability. When a company gets bigger, accountability is diluted. There’s more chance marginal workers will be hired, unnecessary jobs will be filled, and that some employees will not do their jobs.
As you put it, the attitude becomes, “Who cares? The company isn’t owned by anyone; it’s owned by the public, so let’s milk that baby while I can.”
As you also point out, the connection to profits is rather obvious with sales jobs — but that’s only because we associate revenue with profit. People that work in jobs like manufacturing or shipping will claim they have nothing to do with revenue or profit — they’re overhead cost. But every job affects either costs or revenue (or both). That means every job affects profit because every job is a company’s attempt to prosper more.
What is profit?
The profit equation is simple:
REVENUE-COSTS=PROFIT
An accountant or finance person might scoff at that because, of course, each of the terms on the left comprises many factors. But in general, that’s the accounting.
If your job (e.g., sales) seems to affect mostly revenue, you’re more likely to understand your role in profitability. If you work in quality assurance (QA) or on the computer help desk, it’s easy to see how your work represents a cost to your employer. However, all those jobs affect the equation. Do your job thoughtfully and well, and you help increase revenues or decrease costs — hence you help boost profits.
If a help desk worker can successfully close more problem tickets, that brings costs down. When a QA engineer examines a product design more effectively, costly failures are reduced. When a salesperson closes more sales by developing more product expertise, that boosts revenues. All three employees have affected profits.
The challenge, of course, is how do you calculate your impact on revenues and costs? Few companies understand how every job impacts the bottom line, as if it doesn’t matter. Many can’t even track P&L (profit and loss) of entire divisions or departments, much less individual workers.
That’s why their hiring practices are so screwed up.
Foolish ignorance
That’s what’s wrong with business. This is a big reason why companies fail. It’s also why good workers get laid off and why mediocre job candidates get hired. It’s why companies often have open jobs that shouldn’t even exist. But, rather than sit down and work this out, most companies prefer to remain ignorant of what is perhaps the key metric of success. They find it easier to “throw bodies” at nebulous “problems.”
That’s foolish.
If you and your manager can’t explain how your job contributes to the bottom line by reducing costs and/or increasing revenues, you’re revealing a dangerous kind of ignorance. Neither one of you is going to have a job for long. You may be able to “hide” for a time, but not forever. My suggestion is, go meet your company’s Chief Financial Officer (CFO) and ask for some insight on how your department affects the bottom line. Then discuss how your job affects it. When a company’s total bottom line shrinks or goes negative, it’s because nobody’s watching whether divisions, departments, teams, managers and individual workers are doing profitable work. How your CFO responds may tell you a lot about the prospects of the company.
Every job is one job
Why do companies hire? Despite how critical a factor profitable work is to a company’s success, most companies don’t care whether a job candidate can show how they will contribute to the bottom line. They hire blindly. Most job applicants don’t care whether or how the job they’re interviewing for contributes to the success of the whole. This makes a fool of the manager, the job seeker, the company, and its investors.
So in response to your suggestion that we need not worry about who does or doesn’t do profitable work because employers don’t — I say we do. Fundamentally, every job is really the same job and its title is Profit Maker. Companies should hire only to fill such jobs.
Our bottom line here is this: Why would any job seeker want to throw their lot in with a manager and a company that doesn’t understand or measure whether a job is profitable? It’s a slippery path to one dead-end job after another, and ultimately to a failed career. For a company, it’s one of a thousand cuts that leads inexorably to bankruptcy.
And it all starts with understanding the purpose of a job.
When managers roll their eyes at a job candidate (or employee) who cares to discuss how a job contributes to profit, that’s a signal for the candidate to walk out of the interview. That’s a signal to go find a better-run company that’s going to blow the manager’s company out of the water.
Is it wise to accept a job when you don’t know how it contributes to the company’s success and profitability? Is it wise to hire someone without exploring how they can help make your company more successful? How would you explain your job’s contribution to your employer’s bottom line?
Challenge: Can someone explain how all this is true for non-profits, too?
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Great topic, Nick
I especially liked this line in your response- “Every job exists to create an outcome that has more value than what was put into getting it done.”
As for your challenge re: the non-profit sector – even if an organization is “non-profit” or “not-for-profit,” its long-term existence still requires consistently generating “an outcome that has more value than what was put into getting it done.” That outcome takes many different shapes, of course.
The donations, volunteer labor, etc. that keep a non-profit organization running have to be efficiently and accountably transformed into results that substantially advance the group’s stated goals – otherwise, the donors will send their money elsewhere, and volunteers will leave and so on.
So even if non-profits are not facing the typical “market” pressures that a private for-profit business must contend with, the non-profits (especially with all the contemporary demands from sophisticated donors for transparency and demonstrating “impact”) are still under what amount to competitive pressures.
The force exerted by these pressures is such that they push the non-profits to constantly show how they are creating “an outcome that has more value” overall than the aggregate of the donations received.
So to me, you’ve concisely captured a pressure that both for-profits and not-for-profits must both face, including when making hiring decisions.
Interesting that with at will employment, an employer can arbitrarily call you on the carpet, tell you you’re not earning your keep (with or without any verifiable data or benchmarks to prove this), place you on a PIP (which is just shaking your death rattle), or terminate you on the spot. Or, tell you they got over the hump now, and run through this same scenario. So why then did you hire me (or anyone else for that matter) in the first place?
There’s little rhyme nor reason in hiring. Many jobs have become nothing more than made for work jobs, building a fiefdom, or being a plantation slave for managers who’re too lazy to do their jobs, are inept, or are not being held accountable.
With literally no culpability on employers, I’ve come to ask employers point blank in interviews “is this a real job you’re interviewing me for”?, “I’m not interested in getting an employer over the hump”, or “I’m not interested in being told in 90 days (or whenever) that I’m not earning my keep, or I don’t have the chops for this job”. While gritty candor usually disqualifies me, the few that answer in what sounds truthful, are most likely the sweet spot.
Interesting as always. you can fill a room with books on it and the many related factors.
I think everyone’s job, CEO down to a new hire, is to make the company successful. It certainly should be in management’s DNA.
You can run & you can hide, but successful means consistently profitable. That’s the challenge.
Connecting the dots between a job, person, manager, or even an organization is a nice idea. But very idealistic.
In sum, management would need to care about it, have a fiscal structure that would provide the ability to do it, have managers and staff fiscally savvy (i.e understand a P&L and how to read it) and use it.
Still, this doesn’t mean the concept is impossible. Keeping in mind that whatever we’re talking about is money, there are other metrics that can give targets and insights.
The seeds to connect contributions to the P&L and embed it into everyone concerned would need a development effort, a project so to speak to put it in place, because the current business SOP doesn’t have it. You’d need a system comprised of fiscal structure designed to capture and present the information, and also a change in management practices to use it, and an Executive Team who strongly supports the concept.
Diving deeper. On caring about it. One thing I observed/learned is that before you get to the point of considering what a person, or an organization is contributing to the bottom line/P&L and to what degree, you have to even want to.
Start ups by definition care. Typically they aren’t initially profitable. That’s the point, starting out they aren’t expected to be. Everyone’s objective to get profitable. It’s quite clear, that a right person, a savvy manager can make a difference in cutting costs, or increasing revenue.
Tom Peter’s point is well taken. I don’t know if the cut line is 25, but there is a tipping point. Where one’s contribution to the bottom line is quite clear, then moves to where it’s not likely due to it size as well as the multiple products and services that they produce. Companies start to change at this point.
When you can’t justify your existence with #’s you fall to abstracts, e.g. concepts e.g. “best practices” they do it, there so should we. Explicit moves to implicit…”Of course you need to test the software..if you don’t horrible things will happen.” But you can’t even attempt to prove it numerically unless you have a financial structure that provides the means.
for instance there’s a metric out there called COQ (Cost of Quality)
This is the beginning and growth of what the writer noted. Manager’s can’t grab the right numbers, nor are they asked to, so focus shifts to organizations. Their organization. Tangibles about their headcount, their budget. Here’s where politics come into play big time, ego over company health, etc.
How can you not care about fiscal detail, when it comes down to it, it’s the source of your revenue? Perhaps care isn’t the right word. “Need to” is perhaps better.
For example. I worked for a company that was intensely profitable (until they weren’t) couldn’t ship product fast enough, money coming in like the end of a fire hose. By example the executive attitude was “who cares?”. “We must be doing something right and as such the details take care of themselves. Got no time or interest in instilling budgetary sensitivity into the teams because it’s unnecessary. If the boss doesn’t care, neither do I. This approach bit them in the ass because the nice profits, marvelous stock prices well hid the daily screwups. When reality in the form of modest or poor sales, declining stock prices..deep trouble.
I’m not saying the executive teams don’t need the #’s. They obviously do. But often their view is just high level. But the devil lies in the details. in how a function, department, manager, individual affects that, bottom line is murky at best. Hell sometimes they don’t even know what’s being done or not done in the depths
Start ups have one advantage. Usually they have 1 product or service in their bag of tricks. Right or wrong contributions are fairly obvious even in the absence of a structure that lends to better accountability.
Crossing the tipping point usually happens with growth. When you expand your portfolio to multiple products or services. Then I can almost guarantee you’ll see this scenario. Product X, overseen by VP Y claims that his product brings in the lion’s share of sales and by default the company’s profit. Peer VP’s who own other products say “does not” VP Y counters with “Does too” & I resent you picking up bonuses from my hard work. Peer VP’s say, that’s because Marketing loves you best and on & on.
CEO say’s play nice. reorgs to a decentralized Divisional model where X and peers each have all the resources necessary to produce, sell their products and as such, have their own P&Ls. Now the CEO, Board, investors can see some accountability.
Then this scenarios repeats Divisional growth & more products and related complexities of accounting for profits. And round we go again.
I didn’t understand it at the time, but in my 1st management role I was in a Division, an R&D and Mfg cost center where the bean counters set up a really good system for capturing project/product costs. So they could present a good accounting of the costs to develop, maintain and manufacture all their product lines. Which I assume for higher level accountability could be connected to the applicable revenue streams.
It was good enough to where I could see my department’s cost per product, could show my engineers their piece, and at times connect some cost saving achievement they did, to a product’s cost. And good enough to where I could spin a good case that the horrible bug Mary found saved $$$ in support costs, and horrible qualitative hits on customer Sat.
I learned that you can structure a finance system to equip managers with sufficient detail to get them focused on the money, and hold them accountable for how it’s used/not used. Without such an infrastructure set up to make such connections, lots of luck in having a clue as to your impact on the bottom line.
I also recall in another company a time where someone got a hair up their xxx about doing just this. Manager’s were to make assignments in such a way that you could connect it to profit. I can tell you, great idea, but hard to do. And frankly since we lacked visibility to a P&L or targeted P&L for our products, nothing really changed instead for creative writing used in performance appraisals. And that idea lived for one accounting year.
They had the concept, but no means of tracking results.
I do have an example of where I could directly connect someone’s work to a potential improvement of a P&L. One of my many tasks was to manager a tech writing group. Back in the day when hard copy manuals were produced. Their completion was THE last deliverable that had to be in place before the applicable software could be released. Mary, my writing manager, came up with a way to cut 6 weeks off the schedule via speeding up the printing. Anyone who’s been in Software Dev should be able to relate to the significance of cutting 6 weeks off the schedule means. Trust me it’s non trivial.
This translates into cutting 6 weeks off time to market. Which means sales can start six weeks earlier. But anyone who’s been in Software Dev. can relate to my use of “potential”. The development manager was slipping on his schedule by about that much. So her immediate contribution was simply to save his ass, which was greatly appreciated. I leveraged it into a nice raise for her.
But overall, this reduction in time was forever. And easy to translate into $. This highlights the point, time is money. While you may not be able to connect a contribution down to P&L$, you may be able to connect it to time, or productivity, the next best thing to being able to say “I saved XXX$ a year forever”.
Over my management years..there was a holy grail…managing to budget. Meaning fund me, then let me handle the funds to do what I’m supposed to. butt out. In all my years I’ve seen only one case where that was really invoked.
I don’t know what it’s like in accounting firms, advertising etc. I grew up in computer companies, in Software R&D (I was SQA). Software Development is labor intensive. There are budgets of course, but by & large the quick & dirty way budgets were managed was by headcount. You want to cut costs? downsize. You want more people get a bigger budget. That was your connection to the bottom line.
If a company manages that way, don’t be surprised that managers are clueless about managing fiscally & even are aware of the P&L, or care about it. Executive manager has told you they aren’t interested in you caring about it. They have a Finance team that worries about the #’s.
And most often the way Finance structures it, and the #’s they provide, don’t provide any means for you to extract your specific contributions to that bottom line.
One more example & I’ll shut my cursor up. Another project. Internal start up. I inherited creating, & managing the overall budget. And never could shake loose of it. My boss did want to put in place a “manage by budget” operation. I think counting myself she had about 6 direct reports. Who each had their budget. In short, they had no clue in what to do with it. So I ended up managing the whole thing, translating her decisions into a budget and just giving it to them. They were experienced managers, who learned to manage by headcount, no interest in changing. And there wasn’t even a hint of being able to connect contribution to a P&L. …No one cared.
@Don: If managers and employees (and job applicants) were to even TRY to tackle the question of how a job contributes to profitability, I’d be happy. You can learn a whole lot just by trying to figure this out with your boss or employee.
As I said I recall one such effort, But I don’t recall much. I think I was a manager at the time. But my recollection is it kind of dropped out of the blue. good idea with no way to associate one’s work to a distant bottom line. and it quickly faded away.
When you think about it, Start Ups are in the best position to do this as they usually are a one crop farm. Everything everyone initially does contributes to the bottom line & everyone knows it. To what degree is less clear. to your point can it be clear?
It becomes a real challenge with growth & with it multiple products or services. You’d be doing well if there was a clear picture of each product’s contribution & who participated in producing and selling it. Most of my working life that wasn’t even clear. So a start would be to try there, make it clear. Then possible some means could be contrived to then parse it down to who contributed & to what degree. Then one would need to derive the way to relay that info to those parties, and to also do post mortems to see if anything useful was learned to empower people to do better and be rewarded for it.
As I said I’ve worked in R&D for decades in the techie world. And unfortunately I and many others along with me worked mightily on loser projects that never saw the light of day and/or lost money if they did. So you knew for sure you contributed negatively to the bottom line. How motivating is that?
Cost savings are usually clear. One=offs, e.g buyers who cut a good deal on an expensive piece of equipment (which is their job), or forever savings e.g. finding a way to decrease power costs that go into effect from the point of discover.
But I think your point is that it’s a mindset that has to be instilled in managers and their teams. Start thinking as if you’re team is a business..& if you both look for the connectivity you may look and if you look you may find.
This is true for non profits because instead of the objective being profit, the objective is hitting certain metrics as laid out by their granting. So the equation is now funding – cost = metric achievement to acquire more funding.
This is usually why most non-profit employees are burnt out because they are doing things way outside of the scope of their hiring.
I hope this helps!
Thank you for always being a source of wisdom!
@Arya: Thanks for your kind words, but most of the wisdom on this website comes from readers like you. Thanks for contributing a nice, succinct equation for non-profits!
I’ve encountered too many FORMER employees of non-profits, and every single one had succumbed to the burnout problem you described.
From 1980 to 2014, I worked at various S&P 500 chemical companies. I can vouch that due to the complexity in production and development, that any accounting system that claims it can verity the profitability of a single employee is pure fantasy. So where does that leave the individual employee? On his own to navigate the corporation and how it rewards work. Without a good mentor you are just floating in the wind.
Because of the difficulty in determining profit contributions by even groups within a department, the idea of head count dominates corporate life. Slavish devotion to this can lead to some bizzare decisions. But, that’s the sad truth, and I have not seen it changing in the past decade.
So to get back to the original point of profitability of a hire, the successful candidate would be aware of this phenomena and convince the hiring manager that he can handle more than one full time job. Over time, this is a formula for burn out and health problems, but like our whole economy work for a while until it doesn’t
From my mercifully brief stint at a consulting firm (one of the global majors), they’re very good at counting hours but lousy at, for the staff jobs, relating what you do to profitability or results. Thus there is a TON of makework and ‘marketing departments’ that operate like factories.
Based on Nick’s logic, BPO/consulting firms should not exist at size.