Friday, May 15, 2009

"Overhead"

Strategic Management requires a shift in perspective when viewing "overhead".

The traditional view is based on a financial tradition of:

"CONTRIBUTING to Overhead (Absorption)"
Here we are trying to 'spread' the cost, to get as much 'out of it' as possible.
This leads to cost averages mixed into cost structures. The necessary detail of the cost structure is lost.

The perspective for strategic decisions needs to be:

"Overhead CONSUMPTION"
The key difference is the detailed link of what is actually consuming which overhead and by how much. Many items considered 'overhead' can truly be attributed to certain processes, products, customers, and channels. All of a sudden 'overhead' is not 'overhead' anymore.

This leads to profitability insights that can then allow proper strategic decisions about the respective 'overhead'.

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