Jack TenneyExtra Point

by Jack Tenney, Publisher

November 2014

The word stung like an angry wasp.

Mr. Jenkins, the soft-spoken CEO, called a rare meeting of corporate managers and staff to announce the acquisition of several factories on the West Coast. It was quite a coup. Our company could now deliver its soon-to-be–obsolete, asphalt-based roofing shingles within an overnight haul to every potential homesite in the lower 48.

The first thing he said as we sat, if we had chairs, was, “Overhead!”

Overhead? He had never seen us all in one place before — analysts, programmers, managers, officers — and when he did, what he said was “Overhead!”

It was true: I was overhead. The cost of maintaining me had to be absorbed. I wasn’t part of a profit center, I was part of a profit center’s corporate burden. Every square of shingles had a standard cost made up of materials, labor, and overhead. Manufacturing overhead was pretty much okay — necessary. Heat, light, depreciation, supervisors, forklift drivers were clearly necessary costs of doing business and getting the product out the door.

But corporate overhead? Mr. Jenkins was a big pot calling all us little kettles overhead, and I didn’t like it.

Truth is, I have always been overhead except for a couple of summer- and Christmas-break jobs when my back was stronger. Even when I was a so-called professional and was judged chiefly by my billable hours, whatever client ended up paying the bill counted the expense as overhead.

I would bet that most of the readers of this magazine are overhead. Now and then, we may actually do something that can be measured and valued, perhaps even sold, but for the most part we are planners, trainers, and supervisors. We do a lot of administering. We lead or coach or manage or wander, depending on our natural or adopted style.

Overhead, by the way, is difficult to control. It appears to be cheaper as size increases because overhead tends to be fixed. So, when total costs are divided by total units, cost per unit decreases as units increase, but increases when units decrease. That is illustrated when one hears that it costs $90,000 a year to keep a prisoner in the “big house.” If you want to cut that cost per year, put more people in jail. Parolees don’t take their overhead burden with them.