Uncharted Waters

Aug 5 2014   1:12PM GMT

Can cost centers cost less?

Justin Rohrman Justin Rohrman Profile: Justin Rohrman

In software, and the IT world in general, most of the folks producing the sellable product are in a area of the company often referred to as a cost center. A cost center is any part of the business that, at least at a superficial level, has a negative impact on company profit. Cost centers for software companies are groups like development, testing or quality assurance, customer support, and product management. Pretty much anything that isn’t sales. In most non-software companies, the IT department is considered a cost center. They have high costs but don’t actually create revenue.

Here is the premise – companies don’t invest BECAUSE they are cost centers. Putting more money and resources into area of a company that does not actively make money seems like an oxymoron. This usually leads organizations to isolate this area first for cost savings and staff reduction.


The problem

There is an idea that most companies resist investing in these cost centers, software testing for example, because doing so would be an oxymoron. This seems to be a pretty standard business concept. When a business is in trouble or wants to improve revenue on the books for whatever reason, support or cost center roles are most often the first that have hours reduced or are laid off entirely.

I don’t think it has to be that way.

Counter #1 – Investment in cost centers make them cheaper

Companies recruiting for cost center employees often include the phrase “must be able to hit the ground running” or something along those lines. This can be an indicator that the company is not interested in investing in and developing talent in that department, it is also commonly paired with a below average salary. Investing in cost center employees can save money for the business. The investment, be it hiring high-end talent or willingness to pay for training and education, will often result in fewer mistakes and things being done the right way the first time. In terms of the 7 wastes, this investment can reduce waiting and defects.

Counter #2 – Skilled cost centers need fewer people

In the software testing (or quality assurance) world, conventional wisdom is to hire a large group of unskilled people to follow explicitly scripted test instructions prepared by a lead or architect type person. The thought is that, if they can follow instructions, they can test software. That large staff costs the business money, even if they aren’t paid very well. Hiring fewer but more specialized and highly skilled people for this type of job reduces the burden of a large team and all the needs that surround large teams.

Counter #3 – Cost center lay-offs increase long term business costs

These parts of large organizations are often the first to feel the pain when a business chooses to downsize. Reducing support roles often cripple a business for some period of time after a layoff and also over work the remaining staff to the point of burn out. Ideally, the business is developed in a lean, pragmatic way that the counters I mentioned above would suggest. This is often the exact opposite of what venture backed startups do when the investors want to make a big growth gamble.

My assertion is that the conventional wisdom that surrounds cost center jobs is what makes them so bad for businesses. Even though the competition gets stiffer, I support smaller more skilled teams. In the same way that competition improves the market for consumers, I think it will improve the employee talent pool for potential employers.

This change is already happening slowly in software. I’m eager to see where this idea will spread to next.

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