Mark Twain once put it that “there are lies, damned lies, and statistics”. I wonder if he ever considered where accounting allocations sat within that continuum.
Many years ago, there was a long, long period of internal discussion about the profitability of a particular divisional product line. Finally, a corporate decision was taken to package that product line into a discrete organisation and determine if it was, in fact, profitable or could be made so, or could be sold off to someone who could make it so.
The organisation was formed with all of its executives, sales and marketing, field workforce, technical support, finance, human resources, and information technology functions, separated internally from the rest of the company. The separation drove focus and efficiencies. There was little to no argument about cost allocations, because there were not many costs left to allocate. Eventually, the business was sold off and continues to this day.
Contrast this with the direction taken by other divisions with a similar product line, where cost allocation arguments were never-ending. With corporate blessing, they moved to sell off what was perceived to be an underperforming product line, without packaging it up first. The purchaser of this piece of the business was wise enough to include claw-back provisions should the promised revenue streams not prove to be what they seemed to be. Well, you can guess what happened. Every flaw that could possibly crawl out of the woodwork did just that.
In retrospect, it is not really difficult to understand why the business was perceived as underperforming. It was not a real business for many reasons including:
· no single executive had direct operational accountability;
· its customer and physical records were not in good shape; and
· it was a magnet for corporate overheads.
So what lessons can be learnt? If it is not a matter of corporate survival, if you are contemplating selling off part of your business, make sure you know what you are actually offering for sale and why. One way to minimise risk is to package it up internally. This drives the accountability and questioning required to improve the prospects for a good sales price. If a product line is a sideshow, recognise that it is probably a sideshow because it has been neglected.
Mark Twain also once said to “get your facts first, then you can distort them as you please”. Do you really know what you are selling? Should you be selling?