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General Concepts with Service Centers

Billable Versus Non-Billable Activities

Exactly what does the business unit get billed for when it uses a service center? There are parts of a service center that might reasonably be left as overhead, i.e., not billed to the product lines.

Before running through the possible distinctions between billable and nonbillable items, we should review the purposes of making a service billable. One purpose is to encourage the service center to be more efficient in its handling of business unit requirements; the other purpose is to encourage the business units to use the services efficiently, for example by preparing materials in a way that the service (whether it is an in-house service or an outside service) can cost-effectively digest.

Given these purposes, an exact accounting suitable for the SEC is clearly overkill.

Should the cost of the computers and other capital equipment used by the people in the service center be billed back to the product lines? In this proposal, the answer is yes: this becomes the basis on which the functional manager justifies his/her capital equipment budget.

Should the basic facilities costs be distributed across the employees of the service center and then billed to the product line? The proposed answer is no: it is not clear that it adds to the effectiveness of the incentives, and is easier for accounting to track if left out.

Many of the service centers have a certification aspect to their activities, including as a minimum the development of guidelines for product lines that are unable to use the service center. Should the cost to develop such guidelines and certification activities be billed? The proposed answer is no: this is geared toward a corporate goal. The organizations that most use the service center are the ones that least need the guideline document; it would be very distorting to the incentives to bill the users of the service to support the nonusers of the service.

If we create a team inside the service center to improve the operation of the service center, should this cost be distributed and billed? The proposed answer is no: once again, such work contributes to corporate long-term goals, not immediate product line goals. The success of such efforts should be measured based on milestones and end results, as with other development projects.

Should the cost of the manager of the service center, be distributed across the employees for billing? The proposed answer is that this be decided on a case-by-case basis, depending on the extent to which the manager of the service center works on corporate goals versus individual product goals (i.e., what percentage of the time does the manager spend worrying about guideline documents and facilities as opposed to nurturing specific relationships with product lines?).

Every service center has a number of odd cases which should be reviewed for operation as overhead or as a billable service. The functional managers should develop proposals for the Executive Review Board (described later) for deciding on the exact breakout.

Review of Services

How do we determine if the service centers are doing a good job? The answer may cause a moment's anxiety for members of service centers who have come to believe that bitter adversarial roles are a necessary part of their lives. The good news is that there are examples in the corporate world of places where such relationships are rare exceptions: it is possible to run companies larger than Autodesk with less friction and fury.

Product lines and business units will be measured according to how well they serve their customers, by measuring profitability. It is appropriate for service centers to be measured according to how well they serve their customers as well. Consequently, this proposal recommends a yearly review of the service centers by the GMs and PMs.

This does not necessarily portend disaster for the service center. Just because one GM or PM is disgruntled with a service center, that is not the end of life for the center, because there are five other business units involved in the review. If all the PMs and GMs do not have a common perspective on a service center, then what is indicated is not the censure of the center, but rather a more detailed analysis. Furthermore, if the vast majority of PMs and GMs are unable to tell whether they're getting good service or not, the company has a much more fundamental problem than the breakdown of communication between product lines and service centers.

There are additional aspects to the review of a service center, including how well the service center maintains corporate standards and how well the service center maintains guideline documents.

Meanwhile, this is not the only forum for communication between a service center and a business unit on how work is progressing. In general, if the GM or PM has a problem with a service center's service, the GM or PM should seek out its director/manager to discuss it. This works the other way, too: the functional manager can seek out a GM or PM if he/she perceives a strained relationship.

NonUse of Service Centers

If, after the GM has talked with the FM, there is a business reason why the service center cannot effectively meet the needs of the GM, the GM should present his/her alternative plan to the Executive Review Board for acceptance. The plan should include the GM's strategy for maintaining any relevant corporate standards.

Guideline Documents and Authority

As noted earlier, service center should create guideline documents for business units that cannot use their services directly. With the coming of guidelines, an obvious question arises: who has to get permission from whom to disregard a guideline?

The FM of a service center can alter or break the guideline without permission: he/she is, after all, the expert.

The more interesting question is, does a GM or PM need to get permission from someone to disregard a guideline? Here, we should probably define a new term to distinguish between two concepts: a ``guideline'' is a recommendation which a GM can disregard, accepting the consequences of the action, without consultation; while a ``policy'' is a rule which a GM must get authorization from the Executive Review Board to disregard.

The purpose of the restructuring is to grant the ``authority to succeed'' to PMs and GMs; therefore, guidelines are, by and large, the more appropriate mechanism for the company.

Does Autodesk have issues which require policies to resolve? Just in case there are, it makes sense to define a mechanism for creating policies.

Guidelines are created by the service centers. Policies, however, should be created by the Executive Review Board. People in service centers can propose policies to the Executive Review Board--but the Board must make the decision. Before anyone creates a policy, the Board should scrutinize it to make sure that it states the underpinning requirement in the broadest possible terms, rather than as a particular implementation strategy, to maximize the policy's flexibility.

Since a GM can disregard a guideline, it behooves the maintainers of a guideline to list the reasons why the guideline is a good idea. The strength of these explanations will often determine whether the guideline is followed or disregarded.

When a GM disregards a guideline, he/she should be aware that the service center may no longer be able to assist the GM with matters related to the disregarded guideline, i.e., once the process expressed by the set of guidelines is broken, the director/manager of the service center may not be able to support other pieces of the now-broken process.

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Editor: John Walker