Direct cost is typically defined as the amount that is directly involved to produce a product or service. Indirect costs are those that are hard to assign to one individual product or service. Often, these are things like depreciation, administration and so on. Is this something that is ever looked at by management today? What would the purpose of looking at these cost be? Two major aspects of business that these costs will affect is morale and profitability.
Morale is often overlooked in an organization. Managers tend to underestimate the effect it has on the organization’s efficiency, effectiveness, and productivity. Here is the challenge to these individuals, look at the most productive organization you know; what is their morale like? There are many factors that affect morale, but all of them have one thing in common; perception. Perception is a very perverse concept; it relies on one thing; an individual’s viewpoint or opinion. To believe that any one can change someones perception, is a fallacy. We can influence perception, but the only one that can change it, is the person them self. Understanding this is the key to being able to affect change on a person or organization.
So let’s look at this concept; globally. What individuals, within the organization, can affect change on a consumer’s perception? The best, and most efficient, would be the front line employees. After all, to the consumer, they are the organization, not the name on the shingle. What must also be kept in mind is what was stated above; we can only influence perception. Besides, influence is a skill of leadership, and developing it while in any position should be a goal for everyone. This exemplifies the two most important components to the survival of any organization, their consumers and front line employees. Without the consumers, there would be no revenues; without front line employees their would be no consumers. So why are front line employees considered “expendable”? As manager’s maybe we need to reevaluate this concept. Is it possible that front line employees are more important then some mangers? When we are looking to reduce cost, maybe we should look at how tall our management and administration is first, rather than reducing front line employees?
So who in the organization is the best to use in order to evaluate the morale of the organization? If we follow the philosophy that has been identified previously, then it would be the front line employee. If morale is high, front line employees will demonstrate this attitude to the consumer. If morale is low the consumer will not feel the “positiveness” that they should feel, from the front line employee. This will give the perception that the organization does not truly care about the consumer,and they most likely will not return. This will then affect profitability of the organization.
In order to keep morale high, front line employees must feel valued. Put yourself in this position, if you feel valued, in your work, will you present a more positive attitude to those you deal with; both consumer and colleague? So if you are a front line employee, what are some of the things that could make you feel more valued? What are some of the things that make you feel less valued? As a front line employee, you will have a first line supervisor. Now typically this first line supervisor will often be compensated more then you make as a front line employee. This is often due to the fact that they have more responsibility, so it makes sense in most organizations the difference is most likely 25% to 30%. But what if that difference is 88%, 102%, or even 132% more? As a front line employee, are you going to feel valued? How is this going to affect your morale? There are some organizations that participate in this practice. They state that they cannot afford to give front line employees more, yet first line, second line, and third line supervisor are compensated in this manner.
This brings us to what this article is all about. Front line employees are direct cost, without question. They deal with the consumer daily, and present the image of the organization to them. First line supervisors can be considered direct cost, but they can also be indirect cost. This is determined by the individual’s leadership/management style. If the leader/manager is a “hands on” style, they are involved with the ones they lead/manage on a daily basis, they will also be involved with the consumer. This makes them a direct cost. If the leader/manager is a “hands off” style, they will be more involved with administration, they will have limited involvement with the consumer, thus they are an indirect cost. All supervisors that are second line or higher, are always indirect cost, as they are almost never involved directly with the products or services to the consumer. The individuals that provide “support” to the front line employees, are also indirect cost. The importance to understanding these definitions relates to an analysis that is rarely completed, direct cost verses indirect cost. This analysis gives us a very important picture, how much resources are we giving to areas that do not directly affect the consumers we serve. Often, it also indicates just how tall our organizational management is. This points out that we may not be using limited resources in the most effective way. This could also be an indication as to why morale is at the level it is, within the organization. For example, if we were to perform this analysis and discovere that direct cost is 25%, and indirect is 75%; maybe we should reevaluate the use of these resources. This indication could mean, that the majority of the resources that we have allocated, may not meet the purpose of bringing products or services to the consumer. We must also ask the question, how much is this affecting morale?
The question is, how do we know if all that has been presented in this article, is accurate? One could make the argument, as I would, that we can see this in a real time situation today. Let’s look at the crisis in public education in the state of Arizona, which has made the news lately. This issue has resulted in massive demonstrations at the state capitol and other venues. Removing the political arguments about state funding, lets look at “what is”, not “what if”. To give background on this situation; Arizona pays their public educators the lowest of the 50 states. The biggest argument to this is that the state refuses to fund public education. This is not an argument that we will enter into here, as this is a political issue. As managers, we should never deal with “what if”, but rather “what is”. We cannot change what is going on, we can only use what we have to the best results. An exam of seven school districts in Arizona result in some interesting facts. When you look at the compensation of front line employees, teachers, they start between $35,181 to $41,772 per year. The first line supervisors, principals, are $62,771 to $96,925. This is a difference 84.26% to 132.03%. All of this is public information that anyone can find. One must ask, how does this information affect morale? Then we must ask, how has morale impacted this situation?
This information is being presented to stimulate “out of the box” thinking. As manager/leaders, in order to be more effective, we need to use these skills to improve what we do. The hope is that those of you that read this, begin discussions on the validity of this concept. Explore new ideas so that organizations resolve issues and become more productive.