A lesson for large company managers: stop being large and start spending "your own" money!

I've been building systems for companies large and small for over 20 years. When I say large, I don't mean Microsoft-large, but certainly Fortune-1000-large. And by system, I mean anything sort-of computer or process, like websites, databases, business applications, business processes, etc. In this time, I've seen a lot. Maybe not all there is to see, but certainly a lot indeed. However, in this article, I am going to concentrate on one small detail of my overall experience.

In dealing with many clients large and small, there seems to be one cultural difference in the mindset of the managers that I've observed which clearly differentiates the small companies from the large companies. I can't believe it took me 20 years to notice this... but the pattern is clear not just in my dealings with business but also in the news over the last few years. Are you ready for my big reveal? Drum roll please!

When a small business builds a system, the success of the system is surely tied to the success of the business. If the business does poorly, the system tends to disappear. Sometimes, the system is a big part of the problem, but most times, the business model is flawed and no matter how good a system, the business will eventually fail.

However, when a small business does well, they inevitably work on their systems, good or bad, to make them better. Their success leads their enthusiasm for better systems (if they have a vision for growth) and they work on them again and again to get even better at what they do. Consequently, small business managers have to watch every dollar they spend and they spend it wisely (if they succeed) and constantly think about return on investment. They spend because they know a clear path to recover their dollar – often knowing in intimate detail the numbers they need to “hit” in order to make their money back! They constantly look for value and they tend to innovate in doing so because they often times have to compete and act like, without the budget of, big-business!

Small businesses tend to be led by entrepreneurs of course, and some of these small companies go on to become quite large. Think Amazon and Google for instance, both of which are very large now, but very much operate with an entrepreneurial mindset even to this day! At Google, they even have an engineered innovation path when they require (or at least encourage) their employees to spend a certain percentage of their paid time working on "pet" projects! You can probably think of other companies that are successful that still operate (and spend) like small businesses at least in their entrepreneurial mindset. Of course, some of these small businesses spend quite a bit, the difference being they spend only when they have a clear picture of their return for their dollar! (Check out the book “What would Google do?” by Jeff Jarvis for more on the Google way.)

By the way, not surprisingly in small companies, every dollar spent (on systems or otherwise) is very close to an owner or a partner! Every dollar comes from his or her pocket and everyone close to them knows it. The outcome of this closely-held-money factor is that money is spent carefully and judiciously most times. Everyone at every level (since there tend to be so few "levels") is close to the money and, in effect, feels that it is their pocket too!

Yet, large businesses are often times quite successful before they start thinking of systems. Some of these companies are behemoths in both size and age! I'm not talking 100 employees large, I am talking 1,000+ employees large! Some large businesses have not had entrepreneurs in generations, or if they still do, the entrepreneurs and their spirit are muffled by levels upon levels of bureaucracy and red tape. Managers routinely sign stacks of invoices for tens of thousands of dollars “automatically”. They send out RFPs to request systems they know will cost more than their own homes, many times with no understanding of the clear return on their dollars! Worse even, they actually approve proposals that they very well know (in the back of their minds) will actually cost 4 times as much and take twice as long to implement. And they do so calmly and knowing that when the projects fail (and the costs overrun, and the opportunities are lost for months at a time,) they will have zero accountability. There is usually a vendor (either old or new) or another team inside the company, or another manager they can blame! “It’s not my fault that the vendor did not know what they were doing!” They will rationalize to themselves and their peers later. It is almost like the fact they have millions of dollars in the bank (and each manager has levels upon levels of separation away from the bank) makes them just plain dumb when it comes to spending that money! It is like spending monopoly money to them: the money is not real, the money is not theirs – woo hoo, spend it like a drunken sailor!

Well, I have news for those managers. When a large project fails in a large business, it is your fault 100%. You released the RFP (whether you wrote it or not, understood it or not.) You approved the proposal even though you knew (or at least suspected) it was not possible. You failed to implement safeguards and alternatives and to protect your company from risk. You failed to engineer, then prototype and pilot, a clear path to return of every dollar (with a gain - somewhere!) You spent (not) your money and you did not care one bit about it because you rationalized it as “someone else’s problem to understand the details.” Plain and simple, you did not manage. Instead, you were managed by your own big head (and collectively the exuberance of your teams!) Welcome to corporate America. You’ve passed the test!

What would happen in my world? I’d go out of business. In a small business if you spend stupidly, you die stupidly!

I’m not saying large companies don’t need to spend a lot of money on systems (or otherwise). Large companies should indeed spend big money on their business but only when they have a clear justification and an even clearer path to return every single dollar plus more – somehow direct or indirect! Every manager that spends a dollar should be held to the scrutiny of that expenditure. Every project should have a clear assessment of need, risk and gain. Every project should have a clear time line that means something (not an ever shifting calendar) and milestones that are measurable and measured (not ignored.) Every project should be prototyped, piloted and proven in small scale every single time (yes, it can be done no matter the project size – especially the larger the project and the larger the expense.)

Many books have been written on successful project management and budgeting. I don’t claim to be an expert in that area though I can hold my own. I certainly won’t go into it here as you can pick up a book (or two, or ten) and go to town. There is certainly not a short supply of project management methods to follow, though there definitely seems to be a short supply of people practicing the techniques!

However, here is perhaps an idea that might help. This is “my” corporate bailout plan; my economic recovery plan if you would.

Put every manager (and their entire teams) real close to the bank! If a manager wants to spend a dollar for the company, make that dollar mean something to their bottom line! In some direct correlation to the revenues of the company, reduce that manager’s salary (and his team’s salary) by the same percentage. Then, as they recover each dollar, give them back their salary – at the same rate they earn back the company’s money! If they actually make recover their money and more, give them a share of that surplus. Make them care about the success with the most primitive incentive in the world: their pockets – their fuller pockets, that is! If managers are willing to risk the company's pocket, they should be willing to risk their own!

My guess is that overnight, you’ll start to see a sudden interest in project success at every level of the company! Suddenly everyone will care tremendously about each and every dollar spent. When the decision making is right on each manager’s pocket (and their teams) you will start to see an unheard of zeal in protecting that money and a huge push to innovation and to making more with less!

You think I am crazy don’t you? Perhaps I am! You say: how could I reduce a manager’s salary (and their team’s salary) by 1% or 3% or 4% or 5%? Easy… start today and start now and you will see how where managers wanted to spend $100K on a project, suddenly they’ll have $10K solutions! Put the money in their pocket and they’ll spend it as if it was their own! Over the long run, you might not spend less (ideally you still spend big bucks!) However, your returns will be much larger than before, with waste crushed through hyper-participative-project-management!

Hey, if there's ever a time when you'll be able to hire people with creative compensation plans, now is definitely that time!

I have a business partner that has told me many times: "you cannot save idiots from themselves!" Perhaps this should be the latest business fad to make it across corporate America.