Who authorizes company purchases?

How does your organization handle purchases of things that will help you do your job?

Productivity tools are everywhere. Pick a technology stack and there’s almost no end to the inexpensive packages that you can pick up to save you hours, days, weeks, or months over the course of their useful life. Whether it’s a widget library or a code editor, these productivity tools can be super inexpensive relative to the cost of the tool.

I’ve worked in environments where you have to write up a proposal to be approved by committee for the smallest needs. Need a $30 software library to avoid doing $2k worth of development? Write up a proposal, send it through a committee of Enterprise Architects who make sure the organization hasn’t spent a similar $30 on a competing product.

Now, I understand the desire not to have uncontrolled acquisition of tools in an enterprise, as well as the risk of not having tools evaluated by someone who knows how to do an evaluation. Once you understand the value of time spent on a given meeting by people involved, however, you start to think there might be a break-even point where the cost of the preparation, meeting, and discussions outweigh the cost/risk of acquiring whatever the tool might be.

If your company uses an approval process that costs hundreds of dollars to prevent making an erroneous $30 purchase, it’s bleeding money for every purchase. The company is spending extra money to avoid acquiring resources that an employee could use to help the company profit. It’s one thing to spend a few hundred clams on a discussion if you’re going to buy a half million dollar integration suite, but should that same process be applied to a $30 productivity tool?

If your company uses an approval process that costs hundreds of dollars to prevent making an erroneous $30 purchase, it’s bleeding money for every purchase.

I used software productivity packages as an example, but what about a $50 ergonomic keyboard, or a $20 wireless mouse, or a $20 book? It may seem silly, but I’ve worked where I’ve obtained those items at a cost of hundreds or thousands of dollars, when you consider the decision time. Like the story of the out-of-control government spending where a hammer cost $100 and a toilet seat $600, how you account for acquiring an item depends on how you count the time spent acquiring it, not to mention the opportunity costs of the useful conversations that could have taken place instead of a purchase discussion.

Maximizing the productivity of each individual contributor, or even a team, isn’t a one-size-fits-all approach; trying to ascertain which tools work best for a team, let alone the entire enterprise, is often not worth the high-dollar conversations needed to acquire them. If an employee in one department has a tool that helps them be a rockstar, they’ll talk about it.

In environments where high-ranking approval is needed for every little decision, employees can give up and not even try to maximize their productivity, feeling as if the company would rather they work inefficiently. The decision-making process can be so heavy that it causes discontent and a perception that management doesn’t understand that the employees feel they could be more productive. Doesn’t understand, and doesn’t care.

It’s one thing to spend a few hundred clams on a discussion if you’re buying into a half million dollar integration suite, but should that same process be applied to a $25 productivity tool?

The proposed solution

I propose a solution: Give every employee some spending authority. And I mean every employee. However small, let them know that they have a dollar amount below which they don’t need to raise a request up the entire management chain, or even their immediate manager. Janitor wants a new ergonomic dustpan? Does that really warrant more than a 5 minute discussion? Any discussion at all? Give the janitor an easy way to procure the tools to do their job or get reimbursed.

At the lowest levels, allow employees to pick up libraries they’re comfortable with, books that will help them learn, training courses that will grow their skills. Let them know they are valued and enabled to grow themselves, both for themselves and for the good of the company. At a team lead level, allow them to pick up things that foster team productivity. Allow them access to programs where they can meet with peers and learn how to lead effectively.

What are the benefits?

Giving everyone some spending authority has some huge upsides.

1) This approach builds trust of the employee. Employees will show you whether they make good decisions with money. Reviewing what they purchased gives you insight into their decisions and gives you a window into who would make better managers, who typically would have approval authority for larger spending.

2) This approach builds loyalty towards the company. An employee who feels trusted and empowered feels more loyalty toward a company, making them less likely to leave. Turnover costs are huge and often avoidable. Not having enough autonomy is often cited as a reason people quit. Employees with autonomy and the feeling of being trusted stay longer and result in lower turnover costs.

3) This approach affords an employee experience that’s difficult to get in other ways. Individual contributors often have no way to learn to handle budgeting or prioritization. For so many workers, any exposure to internal business accounting is purely coincidental. This gives the employee direct, hands-on experience in a way that helps them later up the employment ladder.

Trust. Loyalty. Experience. The benefits of this approach are important qualities that can be hard to come by.

Downsides

I’m not blind to the downsides and possibilities for abuse, but I also think that decent accountability will help weed out people who do things wrong. You could even make spending fraud or gaming the system cause for immediate dismissal, the way company theft would be. Even so, what are some controls you could put in place to help this work?

1. Moral turpitude — If there is a system, people will game it. Some will inevitably test the boundaries of the system. Systematic review of purchases can help with that. If you have a team of 6 people all able to make the same cost decisions, and you have one person who’s always using the perk, and no one else is, you need to have a discussion. You can look in arrears at the entire organization’s spending as a heat map per node and see who is spending money.
2. Lack of reuse — One employee wants one book, and another wants a different book on the same topic. You could end up in a situation where you could have probably gotten away with a single book and asked them to share. The overhead on even worrying about that situation, however, is probably already not worth the price of two books. Remember, what we’re after here is lowest total cost, including the cost of conversations that are not contributing to business productivity.

Potential Controls

Lightweight accountability will help weed out people who don’t use the system correctly. You could even make spending fraud cause for immediate dismissal, the way company theft would be. Even so, what are some controls you could put in place to help this work?:

1. Have the immediate manager involved to start with. Maybe at first you give the employee permission to bring things to their immediate manager for spending approval. This keeps the cost of the conversations low (two employees vs a spending committee), so this might be a good middle ground. It still means that the manager, however, has to have spending approval for a certain dollar amount.
2. Any spending program needs to have audit capabilities. Auditing can be done at any organizational level, and a simple bar graph of per capita spending done in arrears would quickly locate any individuals or business units who stray too far from the norm. Too much spending could be indicative of either abuse of the system, or someone leveraging the system optimally to raise productivity.
3. Time box the spending. The approval limit must be per some unit of time. The time granularity may need to depend on the size of the spending authority. I might want to give my employees a limit of $30 a month, or $100 a quarter: enough to buy an e-book or online course a month for their professional growth.

I like this idea a lot. There’s a certain amount of “Trust, but verify” work involved, but I truly feel it would be beneficial to employees, in terms of growth; managers, in terms of loyalty and lower turnover; and organizations, in terms of net increased productivity.

And that’s the real point of all this. Any spend an organization makes should positively impact the company. Oversight is crucial for keeping large scale spending in check. But an organization also needs to ensure that having oversight is something that increases the sustained productivity of its work force, and one way to do that is to push authorization of spending down to its lowest responsible level.

An organization also needs to ensure that having oversight is something that increases the sustained productivity of its workforce.

This may feel like a blanket expense increase across the organization, and it is. People given leave to spend money will spend money. But it is a known hard expense increase with a huge time-saving upside. How many unseen soft-dollar conversations would be replaced with this approach? Hard to say, for sure, but I doubt it’s a small number.

Know of a company that gives employees regular expense limits? Let me know how it works! I’m fascinated to find out more.