Andy Nurumov

Author: Andrew Nurumov

The more effective CEO works with P&L delegation the more “fuel” a company has to achieve its corporate mission. But execution of employees with this responsibility also matters. A great analogy with P&L responsibility for government budget with different execution and results is actions of last 2 Prime Ministers in the UK.

A. What is P&L responsibility?

As a number of people are P&L responsible in organizations, I give a quick intro. Profit & Loss (P&L) responsibility is when you are responsible for sales/revenue company’s stream and, at the same time, have particular annual budget under management for team and other expenses/investments. Even some CEO-1 level employees at corporations have only the second part, therefore it explains uniqueness of people who are P&L responsible.

B. Why is it important for organizations?

1. Alignment of employees’ interests with shareholders’ ones.
Effective business is not just to work correctly in one part, but it is congruence of all part of organization activities related to cash flows. P&L responsibility allows to have right directions in departments and focus on gist. 
Investors have KPIs for CEO and he/she has to connect them top-down with P&L responsibilities of departments and determine accountable leaders. It allows to connect execution and finance. Likewise, knowing company’s finance for your employees is always beneficial in terms of making right decisions.

2. Minimize inside company / corporate conflicts. 
Many conflicts in companies are for resources or when there are not enough proactivity for achieving particular department / company’s results in cross-functional projects. Make more people P&L responsible and reinforce this culture is one of ways to minimize these conflicts. Nobody said that cooperation should not be an important pillar in your organization. But it should come with financial objectives. Then, decisions would be more thought through.

3. Moreover, such approach could have positive side effects. 
For instance, when VPs of Walmart went to corporate trips to stores every week, they need to bring ideas to top-management team at least to cover their business trips costs. Each expense brings value.

Likewise, minimization of layoff if your department performs well. And more balanced hiring what is important for an organization as a whole.

C. Application to different company sizes.

If you are a startup or a growing company, you have an advantage at this question – for you it is easier to implement than for established companies.

Some corporations try to implement this approach from scratch to levels lower than CEO-1 but I did not hear about many success cases. Mostly because people got used to more balanced approaches. But in mature companies it is much easier to implement for new organic business-units. Therefore it is better to start from them.