Monday, November 30, 2009

Volume 67 - Street Smart Strategy Vol. 2 - Cost Cutting

Finally I'm getting back to the newly created 'Street Smart Strategy' series (I've been preoccupied with the idiots in Washington, ESPN and the NFL), so lets simply continue with Volume 2 (of that series) and pick up where we ended the last installment talking about 'Cost-Cutting' as it relates to the Customer/Sales and overall effect on a company.

Three simple statements regarding Cost-Cutting and one Major Rule to always observe:

1. Most cost-cutting programs fail because 'someone' (usually the CFO, who normally can't get out of his own way, with a overburdened staff of underachievers) sets a predetermined goal, for example, of a 20% reduction, and then spreads the 'pain' evenly around the business. But what these 'mental giants' have missed for years is that running a company at 80% of its previous cost is not the same as becoming the market leader by being the high-profit, low-cost provider.

Instead of cutting costs everywhere, squeeze costs out of your company as well as the "C-Customers" because (one must realize) you have "C type" customers; squeeze costs out of your "C" type employees as well as "C type" departments (like accounting and administration!), and keep service levels at their highest for your "A-Customers" and your "A-Employees" ( "A" Departments - those that produce results that benefit the bottom-line).

To reach better productivity, with few overall employees, segment the market to target the right customer groups with the correct service levels at the right cost. No doubt this strategy should be instituted in the "Good Times" as well as the logic of "Bad Times." Along with 'segmentation' of the market, the next ingredient must be the restructuring of the work load pertaining to all departments. The key question when discussing restructuring (addressed below) is simply 'are people spending the most time where it will bring the best returns, applicable to the Accounting Department as it is with the Sales Department.'

2. Cut Cost during the "Good Times" - Simple, but only the Great Companies understand this concept. It still amazes me when I continue to read about those "thousands" of employee layoffs; were all these people necessary six months ago?

3. Unless cost cutting leads to better productivity, this approach does more harm than good. Customers will leave when they notice that the quality of service/quality of product is slipping. So the question becomes how does one get better production with less people? Answer: Change the nature of the work. Restructure the work based upon the old adage of 80/20. A future blog will explain not only the 80/20 rule but how to adapt your business to that rule as it references the customer. Put the people where it will produce the best results for the customer.

Golden Rule to Always Observe is 'own' your customers, rather than just 'renting' them. Owning them means making a lifetime commitment to deal with each customer's needs and problems.

Hopefully your Thanksgiving involved more than food; but remembrances of your Friends and the value that 'Friendship' offers.....................................................