Going back to the history of accounting, a P&L is a tool used by executives to inform decisions around resource and capital allocation, pricing, etc. In a large organization, it is very difficult to assign revenue and costs to a specific unit within a company and even more difficult to offer true span of control or accountability to a unit leader. The creation of P&Ls that attempt to represent a portion of a business inevitably lead to an excess of internal focus, accountability shifting, and infighting. It is never a good idea to work with two sets of books, so unless a P&L truly represents control and accountability to a leader then it is far more likely to impede innovation, collaboration, and sharing than it is to facilitate well-informed decision making. I would love to document positives with regard to synthetic P&Ls but I’ve yet to see that work in practice — at worst it accelerates internal focus and at best it leaves one with a false sense of success.
Author: Steven Sinofsky
Subjects: Accounting, Finance, Management, Organizational Behavior