Monday, December 7, 2009

How Much is Enough?

This week’s post sparked from a phone conversation I had with a friend who is now an IT QA Manager at a company in Los Angeles (to go unnamed). What struck me was his comment on how there was a lot of chaos at the company due to a rapid rise in new business which was not matched by a proportional rise in IT resources and capabilities. When I commented that it sounded like poor management to me, he countered by claiming that the IT management was doing well to manage the situation. But to me the balancing act of taking on new business in proportion to the resources and capabilities available is under the domain of management as well.

Which brings us to the question of when to say “no” to the customer. Or to handle it another way, the company could raise prices high enough so that demand falls to levels that the organization can provide at adequate quality levels and without putting undue stress on staff. I suppose marketing purists might insist that any and all new orders must be taken on at all costs or there will be irrecoverable market share damage. However, I would counter that taking on new business to the point that your quality levels drop and disruptions and defects are common is no way of maintaining market share either. In any case, this particular company (that my friend works at) has obviously chosen the take all customers at any cost approach. My personal experience in my own career has been that most companies tend to make this choice. But is this wise?

Now there are no obvious answers here and a lot depends on various factors such as the economy, the goals and objectives of the organization (long term and short term) etc. However, in my experience, it has always been negative in the long term when an organization has adopted the approach of taking on all orders and actively seeking out more orders even when the rest of the organization is struggling to keep up with demand. This is especially puzzling when we consider how easy it is to manage demand by simply charging higher and allowing market forces to balance things out without hurting customer’s feelings. When the organization has upgraded its capabilities and capacity, it can always lower prices to re-stimulate demand for its service.

To me, it seems like the goal of meeting large quarterly targets is based on a desire to rake in bonuses and stock price returns at the cost of the company’s long term success. In other words it is a case of greed. However, unlike as depicted in fiction, greed is not good. How much is enough, Mr. Gekko?

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