“A spokesman would not comment on the latest job cuts but said the market remained challenging…We have 1000 initiatives under way across our business to reduce costs and improve productivity”.
- Representative of a global company on the announcement of job cuts & a continued focus on reducing operating costs.
(Source)
In a downturn headcount and capital are the first cost reduction targets – they are high spend areas that are rapidly compressible because of minimal process, system and behavioral change requirements.
These comments highlight why many companies struggle to deliver significant & sustainable bottom line cost reductions after they’ve exhausted headcount & capital opportunities.
Having 1000 improvement ideas underway concurrently is great in theory…but in practice it’s a red flag for an organization that is struggling with effective prioritization, internal alignment & resource allocation.
A study of 50 Australian businesses ($250m+ revenue) provides further insights.
(Source – Request National Business Improvement Study 2006)
The study concluded that all companies were great at generating ideas but 73% of the potential benefits are never realized due to a failure to execute & a failure to sustain.
Execution failures are driven by three key factors:
- Poor prioritization
- 80% of the value is generated by 20% of the ideas. Having 1000 concurrent ideas under implementation shows a lack of understanding & prioritization of the businesses cost drivers.
- Lack of organizational alignment
- Having 1000 concurrent ideas demonstrates that there is no shortage of “critical” work. However, an organization only has so much capacity for focus, action & change. It’s very difficult to align focus & action across an organization when there are so many improvement ideas competing with each other. Everyone works hard, on a lot of different ideas, but little or no bottom line results are achieved.
- Poor resource utilization
- Resources are being stripped out of the organization. The retained resources have an increased work load just to keep the “wheels turning”. Having 1000 concurrent ideas under implementation leads to projects without dedicated resources, resources being spread too thinly, and ultimately projects that fail to start/deliver.
In a downturn the pressure is on to “deliver big”. It’s easy to get swept up in this. Whilst it seems counter intuitive, the time when you’re under the most pressure to deliver, is the time you have to stop & focus.
It’s critical that you clearly understand your cost drivers, prioritize your “critical few” improvement ideas, utilize strong leadership to align the organization, and ensure your ideas are well-resourced.
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About 3 Ps in Profit
Our Vision: Enabling more Australian small & medium businesses to succeed & thrive through genuine partnerships that deliver performance improvement & growth.
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