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False Economies

post # 50 — April 14, 2006 — a Strategy post

For many years, I have watched as businesses try to achieve profitability by drastically eliminating support staff positions, thereby achieving significant cost savings in overhead expenditures.

These savings have come at a significant strategic price. If there is no-one to whom you can delegate familiar tasks, then you just end up doing it all yourself. There is nothing ‘economic’ about having high-priced professionals doing their own photocopying, database updates, billing, banking or any other kind of administrative work.

In their rush to be sure that economic resources are well-managed, companies try to judge the need for support people by how well utilized and how busy the support people are. This is a bad measure.

I actually do not care how busy my administrative support is. What I care about is how much of MY time they save.

Do a hypothetical. If an admin assistant costs $40,000 and I can bill $200 an hour, then how many of my hours would the admin assistant have to save me for it to be worthwhile. It’s 200 hours, right?

And what’s the probability that, if I had a dedicated person available to me, full-time, that that person could save me 200 hours of admin time that I could otherwise spend on building my business? A cast-iron certainty, right?

And yet that 200 hours would only be at 10 percent of that person’s 2000-hour year. If they helped more than that, we’re really going somewhere!

The two key strategic rules of cost management are these –

First, if something can be delegated, it must be


Second, you always want to have excess capacity of your cheapest resource, so that your expensive resources don’t end up doing low-value tasks.


Angel said:


I´m suffering at the moment my third merger and believe me, my boss and VP are just concern about stockholders, about stock price (off course they have an incredible stock option package!!).

Many people consider companies just a way for their career objectives and focus in short term results. It´s not a responsible way of manage, as we saw with reengineering fad of some years ago.

But it is as it is!!.

posted on April 14, 2006

Markkleeberg said:

That is a very wise statement. It’s a pity most companies do not see it this way.

posted on April 14, 2006

Steve Kaplan said:

Wow! What a breath of fresh air! Go for it, David! Couldn’t agree with you more. We’ve been working with professionals for 20 years helping them get to grips with how to maximise their personal performance. How to best utilise their available (and dwindling) admin resources is typically part of the drill. While it’s true that technology has helped make us more self-sufficient, there are still loads of value properly clued-in support people can provide. One of the things clients complain about the most is that they have no time to think! And what difference they can make once they are able to find some. A effective secretary/PA can make all the difference! Heads nod when the argument is made, but in too many cases the urge to maximise profits in the form of cutting what is perceived as an expendable commodity wins out. Professional firms do not generally understand how to manage or motivate secretaries/PAs, let alone how to simply treat them as the valuable well-intended human beings they are. Total waste of resources!

posted on April 15, 2006

Mott Williamson said:

I’m in complete sympathy with David’s argument. However, many professional service firms with their “by their numbers” orientation expect the professionals to get all the administrative stuff done simply by working more hours-on their own time. Or worse, they are encouraging professional team members to charge xeroxing, banking, filing etc. to their clients at full standard rates. That’s on top of charging expenses for copies, faxes and the like. I believe the overbilling case is the most likely scenario. Set impossible billable hour targets, reduce administrative support, and watch profits soar. But what of the poor client? Many professional service firms bill fraudently. How else can someone reach 3,000 hours or more of billability?

posted on April 15, 2006

David (Maister) said:

Sad, sad, sad.

And people accuse me of being provocative.

According to all of you, the truth is so much worse than even am I am saying.

posted on April 15, 2006

Greg Magnus said:


Well said! A lot of firms are penny wise and dollar foolish on this front.

I have a small business client growing a company he purchased. One of the first things he did was reduce the size of his staff. Now, either he or his partner answers the majority of incoming phone calls – the two highest paid professionals and the lead sales people. Makes absolutely no sense.

The strategic mistake many managers make is putting the wrong people in the wrong positions or they fail to include proactive customer service and marketing support in their position descriptions.

I’ve found most admin staff want, and clearly have the talent, to do more than asked.

posted on April 16, 2006

Josh said:

David, can this concept be taken too far? Is it appropriate to use administrative staff, or relatively low-paid resources to free up a partner’s time to the fullest extent? I know an accounting firm that encourages Senior Accountants and Partners to delegate anything and everything to the firm’s admin staff, including non-business related tasks (picking up out-of-town guests at the airport, dry-cleaning, grocery shopping, etc.). Their concept is that time saved will result in more billable hours OR a happier professional. What’s your take on this?

posted on April 17, 2006

Carl Singer said:


Of course all things in the extreme may not be appropropriate, but in the main things can work. Remember, also that what gets (mis)measured gets (mis)managed.

Let me provide a specific example: About 15 years ago when I worked for Bell Communications Research (which was, in essence, the piece of Bell Labs & Western Electric that went over to the Baby Bells at divestiture) we had highschoolers who did photo copying for us. There was pick-up and delivery service and priorities were met.

Use case 1 – Professional staff uses this copying service, copies get billed to their project.

Use case 2 – Professional staff goes several corridors away to the copier and makes the copies themselves, perhaps waiting in line, etc. Perhaps missing a phone call while away from their desk—BUT not having to charge the copies to their project.

OK which is “cheaper”—high school student or “Professional Staff” ?? Which use case dominated?

Another example, perhaps a decade earlier when I was a principal in a botique consulting firm. (All) staff would often run out at lunch time to mail packages and letters. Also staff felt awkward making copies for personal use. Cure—since our administrative staff had periods of slack time—they would prepare packages for the daily UPS pick-up and they would weigh and stamp envelopes. We would reimburse the company (saving both time and in the case of UPS, packaging and service fees from local “mail-box” vendors.) Win-Win. With copies, we put an old coffee can next to the copier. The honor system worked—a nickle per copy. And the proceeds funded our annual holiday party. Again, win-win.

My opinion, however, is that personal concierge services (such as picking up dry cleaning) conducted by support staff can overstep boundaries. If the need is really great, then commercial (paid) services should be employed. Unless, of course the support staff understands a priori that it’s part of their job description and the company pays the support staff during the time that these errands are run. I.e., they’re on the clock.

posted on April 18, 2006