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论老子

道,领导也。领导必需要不断呼唤,教导下属以及以身作则。下属的过和错皆因领导懒惰。

 
 
 

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Chapter 2: OPM Mentality  

2012-06-20 12:00:13|  分类: 7 Deadly Mgnt Be |  标签: |举报 |字号 订阅

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Before the end of every fiscal year, every organization is busy preparing the following year’s annual budget. Budgeting has been the most important financial controlling tool that ensures the organization meets its targeted profit level for the next four quarters of the year.

However, very few people notice there is a severely flawed and ruinous side about the budgeting tool. What is that?

Imagine you are managing the IT (Information Technology) department of an MNC (Multi-national Corporation). The fiscal year ends, but you have not fully spent your budget. What will you do? You know very well that you have to spend it all. Otherwise, you may not be able to ask for a bigger budget for the coming year. You may even have to explain why your estimates at the beginning of the year were wrong. Since the money does not belong to you, the easiest way to resolve the excess budget is by spending it. A smart way out, isn’t it? That is, the second deadly behavior.

Ethically, there is nothing wrong with an OPM (Other People’s Money) mentality. You are not pocketing the money. However, few were aware of its snow-balling effect.

During his first visit to Boise, Idaho on 10th June 2005, the new CEO of Hewlett-Packard, Mark Hurd, mentioned about controlling costs. “I think our costs are too high, and I have been very public in my concerns about IT,” he said, “I believe it is a very big cost structure for us. We have IT costs that are roughly 3 times per user above our competitors’. NCR’s cost is $6,000 per user. Dell’s is $6,200 per user. And they do not sound big until you multiply them by 151,000 people, and all of a sudden the costs are gargantuan.”


When you multiply 151,000 employees by US$18,000 IT cost per employee, it is US$2.7 billion. That was what HP spent every year on IT alone. Assuming HP spends around $8,000 per user which is still 30% higher than Dell’s spending, HP can save US$1.51 billion every year.

HP’s revenue for 2005 was $86.7 billion dollars. With operating income of around 5.5 percent, its profit was around US$4.7 billion. US$1.51 billion could have added another 32% to HP’s annual profit. That would boost its operating income to 7.1%.

How much fat does HP have in other forms of waste?

IBM made 10-11% operating income on US$85 billion revenue. Dell made 8.5% operating income on US$48 billion in fiscal year 2004. NCR made 9% on US$7 billion revenue.  For HP, even at 7.1% operating income, there were still many things to work on in order to catch up with its competitors. A large part of waste has to do with the OPM mentality[1].

OPM is a dreadful disease that afflicts every organization.




[1] For the full story, please read chapter 4, ‘Work smart gone awry’ in book “Just do it” by the same author.

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