Wonga

Wonga

Most developers are, how shall we say – somewhat detached – from the sharp end of the businesses in which or for whom they write software. I have also noticed than many other folks in organisations also have some trouble getting their heads around the practical implications of a period or programme of successful improvement. Of course things will be “better” – but just what kind of better?

In this post I provide an illustrative example of the benefits of a simple doubling of organisational effectiveness, i.e. a move from say “1″ to “2″ on the rightshifting scale – primarily from a financial perspective (acknowledging that many other, non-finacial, benefits can and do also accrue).

For the sake of keeping things simple, we’ll assume an organisation – say, a software house writing custom software solutions for a range of clients – of one hundred people in total, with a break-even (i.e. zero profits) revenue in year one of ten million rubber dolphins (a notional currency) i.e. RD10M . We will also assume (somewhat unrealistically) both that the organisation has no trouble selling all it can produce, and that its effectiveness doubles overnight, on the stroke of midnight at the end of year one.

Option 1 – Trousering the Benefits

This option supposes a doubling of effectiveness across the whole business, that is to say the organisation produces, in year two, double the amount of work, with the same number of staff – and thus revenues double to RD20M. Costs remain more or less the same (no growth in headcount, although maybe some nominal additional variable costs). So profits rise from zero (year one) to (revenue RD20M less costs RD10M = profits RD10M) in year two. As far as the folks in the business are concerned, they are working no harder than in year one. Product (or service) quality will also remain much the same (or continue to improve at the same rate).

Option 2 – Investing in the Future

This option also supposes a doubling of effectiveness across the whole business, but the business chooses to produce (and bill) the same as it did in year one, with the same number of staff, and thus revenues remain at RD10M. Costs will remain much the same (i.e. no growth in headcount). So profits will remain at break-even (RD0) in year two. However, in this case the workforce will only be half as busy on billable work as in year one, allowing for innovation time, holidays, social time and “doing things properly”. There will also be much time for improving the way the work works, automating suitable areas of the workflow, learning, personal and professional development, etc..

Option 3 – Move Upmarket and Segment

This option again supposes a doubling of effectiveness across the whole business, but this time the business chooses to increase the value-add, producing the same volume of work as in year one, but at a higher quality, spending more time working with clients on their issues, taking extra care to deliver the right things, producing more prototypes and experiments, and generally using the extra time to add extra (billable) client value and win business with higher-end clients. Extra value (should) mean higher prices, and thus revenues rise – let’s assume to to something like RD20M. Costs remain more or less the same (again, no growth in headcount). So profits rise from zero (year one) to (revenue RD20M less costs RD10M = profits RD10M) in year two. I would expect some amount of this profit to get re-invested back in the business, not least in more salubrious offices, cars, travel, facilities, etc. to go with the organisation’s repositioning and rebranding of itself as a “premium supplier”.

And Combinations

Of course, in any real scenario, the organisation will likely choose to combine aspects from all three of the above options.

Has this helped make the benefits of RIghtshifting more tangible, more apparent? BTW If you can think of any other likely scenario options, please let me know.

- Bob

2 comments
  1. Option 4 – “Build your own Startup”

    Probably more a 2a.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 10,561 other followers

%d bloggers like this: