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Cost Vs Investment Whats the Difference

J Timothy Connor
 


Visitors: 273

DEALING WITH RECESSION

Times are tough right now, and it doesn't look like they'll be getting better for a while, anyway. Business owners are watching customers tighten their purse strings, and the rising cost of fuel has affected everything from vehicle use to vegetables.

Now, this sort of situation can create a death spiral for a business, or it can be turned to an opportunity, but it's not a trivial thing to approach and I won't treat it that way in this article. How do you turn a down market to benefit? Is it something easy - a “Duh!" answer? How can you go from just hanging on to forging ahead in such circumstances?

WHEN COST CUTTING ISN'T THE ANSWER

Let me answer the second question first: it's not easy, but it can certainly be done. It requires time for thought, and planning to put those thoughts into action. But you have to be careful, because there's a danger in just indiscriminately cutting costs. A cost cutting approach will make things look good immediately, because (since the cost cutting is usually staff) a big chunk of outgoing money is suddenly going to remain in your account. Don't let that fool you, though, you have to consider what you're giving up with the cost cutting you're doing. What services will go away if that cost is cut? If the “go away" is a service that customers value - that has set you apart from your competition - you could be making a big mistake.

Let's consider that word value: value to your customers, and value to your business. Almost every business is composed primarily of services. Believe it or not, even manufacturing is only 15% line production, the rest of a manufacturing company is services. Don't believe me? Before you buy a manufactured product, how much time do you spend researching it, discussing your needs with that company's sales force, dealing with their purchasing department? During the purchase, how is the shipping, and the customer service during the purchasing/ shipping process? After the purchase, how is their invoicing and billing process, their contact after the sale, any service you might need during your use of the product?

All those processes are service processes.
As a customer, which of them would you be unconcerned with if it went away?

Back to value. What is the specific value in your business that causes customers to seek you out? Is it. . .
. . . fast response?
. . . friendly service?
. . .complete and timely order delivery?
. . . high quality goods?
. . . superior service after the sale?
As you cut costs to get those immediate “gains", will any of those areas be affected?

If they will be affected, you'd better know what that effect will be. Many of these short term fixes can cause long term damage, and you need to have considered such an outcome carefully before you cut costs.

Now, don't get me wrong here. I'm not saying that cost cutting isn't a necessary thing. I AM saying that you should think about the outcome of each cost cutting measure before you put it into effect. Take the time to do it.

HOSPITAL SURGERY

I remember talking with a team member of a client I was working with, a nurse in a surgical department. She told me about a job she'd had in a hospital where the seasonal cycling was particularly bad. Basically, the patient population “went south" for four months out of the year, and the number of surgeries didn't justify the number of staff that department carried. The executives’ approach when things got particularly bad was layoff - get rid of “extraneous" staff, and hope you can get them back when things pick up again. But surgical nurses are not easy to find; and orienting new nursing staff is a lengthy and time-consuming process, expensive and very detrimental to physician satisfaction (the docs want people in there who know what they're doing!).

In the situation we were discussing this nurse told me about a decision by management to get the employees involved in the decision. Teams had been trained, and the managers had seen that much good had come from the team concept. They figured that involving the department team in the decision would make it easier to let people go when the time came. So this department team met, but the answer they proposed wasn't at all what had been expected. The staff proposed that all in the department would take a cut in hours equivalent to the amount that would be “saved" by laying off nursing staff. It work-ed out to about five hours per week per staff member - not a crippling amount when spread across all the individuals, but one that would still reduce costs to the goal set by the executives.

After getting over the initial shock, management accepted the idea, it was initiated - and worked beautifully! When business ramped back up in four months, they were ready to go, and morale soared.

Now, what were the benefits gained through that approach?
- The hospital kept the same staff on board
- Training and orientation of new staff was completely eliminated
- The reduced productivity that accompanies new staff training/orientation was eliminated
- The increased liability that goes along with any new people in a high-risk service like this one was eliminated
- Emergency activity during the “down time" was easily handled, the staff were available to handle any amount of it
- Staff got a little extra time off, and didn't see a big cut in pay to get it
- Staff morale soared - both because of the solution AND because they had been involved in making it work
- Turnover in the department actually dropped, people want to be part of a team which is given the involvement in making things work
- Surgeon (physician) satisfaction remained high, because there were no novice staff contributing to errors and slow downs in surgery.

What were the negatives? In this case, there were none! Everyone came out of the situation happy with what had been decided.

STEEL MANUFACTURING AND FABRICATION

Worthington Steel, a manufacturing company primarily based in Ohio, follows a related approach for slower times. When those times come, line staff move to maintaining and repairing machines, providing upkeep and maintenance on the buildings, and related work that is usually done by outside contractors. It means cross training is necessary for the staff, but they know it keeps their jobs intact and contributes to the competitiveness of the company - a good thing for all.

The outcome of this situation is that the company is always staffed and ready to deliver product when the customer needs it. And that's important, because Worthington has chosen to build its plants “next door" to the customer using the product - niche marketing at its zenith. So the company remains competitive, and costs are reined in through cooperation between management and staff. Monies that would normally go outside for routine maintenance and repair are distributed instead among permanent staff as part of their regular pay.

FINDING YOUR COMPANY'S VITAL VALUE

Looking at these two examples, what was the vital value that each company discovered, and refused to compromise?

The Hospital Vital Values
- need to keep surgeons satisfied and referring their patients to the hospital
- need to keep productivity high, and re-training costs low
- need to keep good staff on board, and morale high
- need to keep liability costs in check, and errors low
And the original crisis, the need to lower costs during a down period, were met with flying colors.

Worthington Steel Vital Values
- need to keep machines and structures in repair and productive
- need to minimize staffing costs
- need to keep staff morale and productivity high
And the ongoing crisis, the need to meet cycling periods of high and low production, is easily met.

HOW CAN YOU APPLY ALL THIS
TO YOUR BUSINESS?

1. Before you fly off and cut costs indiscriminately, take the time to find the vital value in your business. Talk with customers and find out what they really like about your company. Ask them what they consider vital, and detail those things they don't want to see go away. Make notes!

2. Look at alternatives to straight cuts. Are there areas where you can cut back incrementally, and still deliver the vital value that your customers, and staff, are depending on?

3. Involve your staff in dealing with the problem. While you are the owner or manager of the business, your staff still have brains, and they have an interest in maintaining the competitiveness of your business. Explain the situation, and get their ideas on ways to address the problem. Take a few days or even a week to allow them to think about it, you will be surprised at the proposals that they come up with.

FACILITATE THE PROCESS

As facilitators ourselves, we at Rodeo! understand the value of facilitating discussion instead of doing all the work yourself. One of the inherent benefits of having a team in your business is the extra brainpower that team brings, and most owners and executives fail to take advantage of it. People in the United States want to be part of a winning team, take the time to make it possible for them to do so!DEALING WITH RECESSION

Times are tough right now, and it doesn't look like they'll be getting better for a while, anyway. Business owners are watching customers tighten their purse strings, and the rising cost of fuel has affected everything from vehicle use to vegetables.

Now, this sort of situation can create a death spiral for a business, or it can be turned to an opportunity, but it's not a trivial thing to approach and I won't treat it that way in this article. How do you turn a down market to benefit? Is it something easy - a “Duh!" answer? How can you go from just hanging on to forging ahead in such circumstances?

WHEN COST CUTTING ISN'T THE ANSWER

Let me answer the second question first: it's not easy, but it can certainly be done. It requires time for thought, and planning to put those thoughts into action. But you have to be careful, because there's a danger in just indiscriminately cutting costs. A cost cutting approach will make things look good immediately, because (since the cost cutting is usually staff) a big chunk of outgoing money is suddenly going to remain in your account. Don't let that fool you, though, you have to consider what you're giving up with the cost cutting you're doing. What services will go away if that cost is cut? If the “go away" is a service that customers value - that has set you apart from your competition - you could be making a big mistake.

Let's consider that word value: value to your customers, and value to your business. Almost every business is composed primarily of services. Believe it or not, even manufacturing is only 15% line production, the rest of a manufacturing company is services. Don't believe me? Before you buy a manufactured product, how much time do you spend researching it, discussing your needs with that company's sales force, dealing with their purchasing department? During the purchase, how is the shipping, and the customer service during the purchasing/ shipping process? After the purchase, how is their invoicing and billing process, their contact after the sale, any service you might need during your use of the product?

All those processes are service processes.
As a customer, which of them would you be unconcerned with if it went away?

Back to value. What is the specific value in your business that causes customers to seek you out? Is it. . .
. . . fast response?
. . . friendly service?
. . .complete and timely order delivery?
. . . high quality goods?
. . . superior service after the sale?
As you cut costs to get those immediate “gains", will any of those areas be affected?

If they will be affected, you'd better know what that effect will be. Many of these short term fixes can cause long term damage, and you need to have considered such an outcome carefully before you cut costs.

Now, don't get me wrong here. I'm not saying that cost cutting isn't a necessary thing. I AM saying that you should think about the outcome of each cost cutting measure before you put it into effect. Take the time to do it.

HOSPITAL SURGERY

I remember talking with a team member of a client I was working with, a nurse in a surgical department. She told me about a job she'd had in a hospital where the seasonal cycling was particularly bad. Basically, the patient population “went south" for four months out of the year, and the number of surgeries didn't justify the number of staff that department carried. The executives’ approach when things got particularly bad was layoff - get rid of “extraneous" staff, and hope you can get them back when things pick up again. But surgical nurses are not easy to find; and orienting new nursing staff is a lengthy and time-consuming process, expensive and very detrimental to physician satisfaction (the docs want people in there who know what they're doing!).

In the situation we were discussing this nurse told me about a decision by management to get the employees involved in the decision. Teams had been trained, and the managers had seen that much good had come from the team concept. They figured that involving the department team in the decision would make it easier to let people go when the time came. So this department team met, but the answer they proposed wasn't at all what had been expected. The staff proposed that all in the department would take a cut in hours equivalent to the amount that would be “saved" by laying off nursing staff. It work-ed out to about five hours per week per staff member - not a crippling amount when spread across all the individuals, but one that would still reduce costs to the goal set by the executives.

After getting over the initial shock, management accepted the idea, it was initiated - and worked beautifully! When business ramped back up in four months, they were ready to go, and morale soared.

Now, what were the benefits gained through that approach?
- The hospital kept the same staff on board
- Training and orientation of new staff was completely eliminated
- The reduced productivity that accompanies new staff training/orientation was eliminated
- The increased liability that goes along with any new people in a high-risk service like this one was eliminated
- Emergency activity during the “down time" was easily handled, the staff were available to handle any amount of it
- Staff got a little extra time off, and didn't see a big cut in pay to get it
- Staff morale soared - both because of the solution AND because they had been involved in making it work
- Turnover in the department actually dropped, people want to be part of a team which is given the involvement in making things work
- Surgeon (physician) satisfaction remained high, because there were no novice staff contributing to errors and slow downs in surgery.

What were the negatives? In this case, there were none! Everyone came out of the situation happy with what had been decided.

STEEL MANUFACTURING AND FABRICATION

Worthington Steel, a manufacturing company primarily based in Ohio, follows a related approach for slower times. When those times come, line staff move to maintaining and repairing machines, providing upkeep and maintenance on the buildings, and related work that is usually done by outside contractors. It means cross training is necessary for the staff, but they know it keeps their jobs intact and contributes to the competitiveness of the company - a good thing for all.

The outcome of this situation is that the company is always staffed and ready to deliver product when the customer needs it. And that's important, because Worthington has chosen to build its plants “next door" to the customer using the product - niche marketing at its zenith. So the company remains competitive, and costs are reined in through cooperation between management and staff. Monies that would normally go outside for routine maintenance and repair are distributed instead among permanent staff as part of their regular pay.

FINDING YOUR COMPANY'S VITAL VALUE

Looking at these two examples, what was the vital value that each company discovered, and refused to compromise?

The Hospital Vital Values
- need to keep surgeons satisfied and referring their patients to the hospital
- need to keep productivity high, and re-training costs low
- need to keep good staff on board, and morale high
- need to keep liability costs in check, and errors low
And the original crisis, the need to lower costs during a down period, were met with flying colors.

Worthington Steel Vital Values
- need to keep machines and structures in repair and productive
- need to minimize staffing costs
- need to keep staff morale and productivity high
And the ongoing crisis, the need to meet cycling periods of high and low production, is easily met.

HOW CAN YOU APPLY ALL THIS
TO YOUR BUSINESS?

1. Before you fly off and cut costs indiscriminately, take the time to find the vital value in your business. Talk with customers and find out what they really like about your company. Ask them what they consider vital, and detail those things they don't want to see go away. Make notes!

2. Look at alternatives to straight cuts. Are there areas where you can cut back incrementally, and still deliver the vital value that your customers, and staff, are depending on?

3. Involve your staff in dealing with the problem. While you are the owner or manager of the business, your staff still have brains, and they have an interest in maintaining the competitiveness of your business. Explain the situation, and get their ideas on ways to address the problem. Take a few days or even a week to allow them to think about it, you will be surprised at the proposals that they come up with.

FACILITATE THE PROCESS

As facilitators ourselves, we at Rodeo! understand the value of facilitating discussion instead of doing all the work yourself. One of the inherent benefits of having a team in your business is the extra brainpower that team brings, and most owners and executives fail to take advantage of it. People in the United States want to be part of a winning team, take the time to make it possible for them to do so!

The author of this article, Tim Connor, is president and founder of Rodeo! Performance Group, Inc. , an Ocala, Florida-based group of facilitators working with businesses and executives who want to make their businesses competitive on a global scale. You can sign up for the Rodeo! newsletter, the Wrangler, at this link: http://www.rodeopg.com/Rodeo_Upload_Site_6-2008/TOPLINK_Contact_Us.html Tim's email is there also, or he can be contacted at by phone at 1-877-284-0009. Visit Rodeo! on the web at http://www.rodeopg.com

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