📬 Trimming the fat: Are 'shared resources' worth the headache?

PSN from India asked:

At some point in a company’s journey, many people are working on several different projects at the same time. As someone who is in charge of capital allocation across 100-odd such projects (all highly cross-functional), I find it hard to work out who is actually giving how much bandwidth to each project and whether the projects I value highly are getting enough bandwidth.

What is a good way to manage this? Is it better to have more people exclusive to specific projects and not be shared? Is there a clean, established way of working with ‘shared resources’? Would obviously differ with different domains and the nature/size of such projects but is there a thumb-rule for the number of projects to people ratio? I work in the automotive industry, but open to approaches to this problem from other sectors too.

Thanks PSN. This is a tricky question, but an important one.

An organization overloaded with projects can be disastrous. It bloats overhead, nothing gets done, and distracts the business from the customer.

It needs an outstanding organization to manage the sort of load you are talking about without getting gummed up. Amazon can do it, but they are Amazon.

As I get older (and more miserable) I realize that the most valuable commodity in business is not $, it’s not even time. It’s focus. Focus wins. A small number of people with no money can get extraordinary things done.

In 1943, Kelly Johnson of Lockheed Martin and his Skunkworks team developed and built the XP-80 fighter jet in 143 days. They didn’t do it by throwing shared resources at the project. They did it with the leanest team possible. And 100% focus.

It’s a long way of saying that you should prefer specific resources for specific projects as much as possible. Shared resources are a great way to get less done. I understand the theoretical efficiency benefits of sharing resources. It just rarely works that way in practice, especially at scale.

You need everyone working on a project to have a high stake in the success of that project. If it is their ‘only thing’ then their fate is tied to the fate of the project. High stakes.

But if they are a shared resource. they can move from project to project and it doesn’t matter if the project fails. It’s someone else’s fault. Have too many people on one project with that incentive structure, and you have a disaster waiting to happen.

Kill as many projects as you can. Organize your project resources into crack teams that solve problems at warp speed and deploy them onto the most important things.

There will still be room for some shared specialist resources, but that should not be the default design.

Thanks for your question.

Bacon from Indiana asked:

I work for a small integrated oil company that is also a supply cooperative (owned by farm cooperatives) with a small refinery, pipeline system, and oil production in the Midwest. By nature, the industry is very capital-intensive, but our company is fiscally conservative: strong balance sheet, never had to borrow, strong cash position, and an investment policy focused solely on liquidity and principal preservation.

One of our long-range plan initiatives involves energy independence and we are seriously considering an investment to make our own hydrogen with a price tag of $250m. If we did this we would borrow to pay for it. What advice would you have for myself and our organization as we head down this new path?

This is a fascinating question.

And I should preface by saying, I have no experience in the oil industry. So please take my words with that context.

As a general rule, I love vertical integration plays. They reduce supply chain dependence, bring a margin in-house, and give you control.

The watch out? It is a venture into something new. The ways of working from one part of a supply chain don’t necessarily fit to another.

There will be some things where your existing operating model is a great fit for this new venture. There will be others where you will have to think differently to your core business.

Knowing where and when is the hard bit.

And it’s more than operational, it’s cultural. When Peloton decided they wanted to take more control of the manufacturing of their equipment, it was a disaster. Turns out the intricacies of bending steel into the shape of a bike, are a much different skill set to making funky fitness content. Who knew?!

But building a hydrogen plant doesn’t sound so far from your core business. And your stated strategy is energy independence. So to me, it sounds like a good strategic fit.

The thing that would give me pause for thought is the price tag. $250m is a lot of money on any budget. And a fiscally conservative farmer cooperative might balk at the risk (and interest payments.)

So you need to be clear on a downside case. If this goes wrong, what does that look like? How bad could things get? And if you can’t answer that question, you need to do more diligence.

So, I would be obsessing over downside protection for this one, given the nature of your stakeholders.

And what strategic alternatives do you have? Strategy is about choices. So saying ‘yes’ to this project will probably mean saying ‘no’ to a bunch of other things. Be clear on what those things are.

Then you need to engage with your shareholders to understand how they feel about the things you won’t be able to do if you make this investment.

It also sounds like you will need either a change in fiscal policy, or at least to move the balance sheet to a different part of the range of the current policy.

I would be robustly testing this with your board, and the shareholders, at every step.

Best of luck with it, Bacon.

Mark from Cleveland, OH asked:

Would you rather close the month in 12 business days with 90% confidence in the numbers or 3 days with 50% confidence in the numbers? Constantly argued with the PE owners about this since it wasn't an overnight fix and required a "take it down to the studs" fix with operations. Would rather make the right business decision two weeks later vs. making the wrong decision earlier off wrong numbers.

Speed of close is important, Mark. Super important.

So your PE owners are right to push you on this. My hunch is the right answer is somewhere in between. 50% accuracy isn’t good enough, and 3 days is too fast.

But 12 days is too slow.

You are halfway through the next month by then.

Great execution comes from fast feedback loops. Building a plan, executing, reporting performance, making adjustments, and going again. If the reporting part of that loop is too slow, the actions takes too long to trickle through the business. It affects the whole culture around pace and urgency.

My personal view is that you need to be talking about the last month’s performance before the end of the second week of the new month.

That likely means closing by working day 8 at the latest. So you can get the monthly reports out, and the performance conversations happen before the end of working day 10.

And some trade-off in accuracy to get there is ok.

Now the easy bit is just saying that. The hard bit is doing it. Shortening a close needs careful re-engineering. It doesn’t happen by accident. You need to get deep into the root cause issues.

How are those 12 days being used? Are resources the blockage? Or is it the volume of discrepancies? Or is it a lag in invoicing? Pinpoint what the key barriers are.

Then attack those pain points, Mark. With the white-hot fury of 1,000 dying suns.

Automate reconciliations, simplify processes, and clean up reporting. Take pride in squeezing work and time out of the process. Reward the team for doing so.

After that, it’s all about materiality.

You, of course, do not want to produce information that will lead to wrong decisions (regardless of the time frame). However, some parts of the financials are more sensitive to materiality than others. So be selective about what is important.

Best of luck Mark - shoot for 11 days next month, please.

Every week I’ll share a book I loved or found useful.

This week is one of my favorites. It’ll change how you think about capital allocation.

A few of the biggest stories that every CFO is paying close attention to. This is the section you probably don’t want to see your name in.

KPMG Wants to Be the First Accounting Giant to Own a U.S. Law Firm

Just when you thought a Big 4 firm couldn’t bring together an even more insufferable group of humans, KPMG just got approval to buy its own law firm in Arizona.

Trump backs out of global minimum tax agreement

Donald Trump has had a busy first week in office. Still no word on tariffs, but we did meet the new (interim) SEC chair, and big tech will be cheering the new president backing out of the 2021 OECD agreement to impose a minimum global 15% corporate tax rate.

Walgreens CEO admits anti-theft measures hurt sales: ‘When you lock things up, you don’t sell as many of them’

Walgreens is in freefall. The pharmacy chain just posted a $265 million loss and its CEO admitted that its anti-shrink/theft tactics are hurting sales: ‘When you lock things up, you don’t sell as many of them’. They are between a rock and a hard place. Shrinkage is hurting margins and anti-theft measures hurt sales. Not easy for retailers right now.

ICYMI, some of my favorite finance/business social media posts from this week.

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Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.