Recently a software vendor was in to visit us here at Design News. The marketing manager related a story about a recent promotion they held that involved bundling software and hardware together as a special offer for design engineers. Essentially, the company was giving away the hardware as part of the promotion, along the same lines of what VW is doing with the iPod.
To the company's surprise and delight, the promotion was a smashing success. But why? What they ultimately figured out was that the engineers who were rushing to sign up for the deal had already spent their software budgets for the year. But they still had money left in their hardware budgets! The promotion was a perfect way for them to slip their software purchases through the system without raising any red flags.
Isn't that a crazy way to manage a business? Unfortunately, it's all too indicative of the way that some companies force employees to play elaborate games with their budgets these days.
When I was working on my MBA back in the early 1990s, cost-activity-based accounting was the big buzz word. The wanna-be bean-counters loved the idea. It was going to be the panacea that would help managers track all the costs associated with every single activity, product, or program—right down to the individual paper clip.
It's a good idea in theory. But what actually happens in the real world is something else altogether.
Instead of accurately tying costs to specific line items, activity-based accounting can actually create a false sense of accuracy. People (including me) often can't find a line item that's even close. As a case in point—actually sort of the reverse of the software promotion—I recently interviewed a candidate for an editorial position. When his trip expenses came in, I couldn't figure out what account to charge them to, since I don't have a line item labeled "recruiting." In retrospect, I should have gone to see him and charged it to my T&E. At least I have a line item for it.
In the end, the software company's free hardware promotion presented engineers with an opportunity to get tools that they needed—but only by giving them the opportunity to manipulate their company's accounting system.
Had management at those companies actually trusted engineers to spend the money in the best way they saw fit—I mean, hey, we're all adults here—their accounting systems might actually make some sense.
kfield@reedbusiness.com
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