You make an announcement something like this.
After an operational review by the new General Manager, the company will reduce costs by $ X Million. Savings will come from operational efficiencies, reducing project costs and reducing costs of consultants. These changes will mean some redundancies and the affected people will be notified today.
Also, we have put in place programs to increase sales:
- Increased focus on cross-selling
- More personalised marketing to our customers, including through digital and social media communications
- Better bundling of product and service offerings to deliver superior value to our customers
- Increase customer engagement
- Improved use of customer data to maximise promotional efficiency and effectiveness
After this review, we are confident the company remains well placed to successfully execute our strategy and invest in growth opportunities to deliver improved profitability for our shareholders.
Can I confess that I have helped write a few announcements just like this? So, what’s wrong? Saving costs is good, improving productivity is good, increasing sales is good, executing strategy is good, more growth is good and more profit is good. Well, experience shows it’s easy to make savings on a spreadsheet, it’s a little harder to announce the changes, and it’s tough to deliver the improvement in profit.
Why is it so tough to deliver the improvement when you are certain you have reduced the people costs, and you are certain you want to increase sales? The answer is in what is not on your spreadsheets, not on your profit and loss statement, not on your balance sheet and not on your cash flow statement.
Simply the tasks that are being done as the company operates during the financial year.
Why should we care about these tasks? Well, when we increase productivity by reducing the number of people, as far as the employees know these tasks still need to be done. So in the beginning, they will try to complete all these tasks. Soon, they will realise they cannot complete all these tasks. (If your company has competent managers, then departments will already be working either close to their capacity or over their capacity.)
So what? In the most extreme cases, people will stop performing certain tasks. Often when deciding, they stop tasks affecting people outside of the organisation (like customers!) because stopping something which affects people inside the organisation is more likely to have some consequences for them. Also, they will typically stop tasks that make a difference in the long-term, because stopping tasks that make a difference in the short-term will have immediate consequences.
In less extreme cases, they will simply delay tasks. Typically, delaying tasks will have few short-term consequences and more long-term consequences.
The long-term consequence of stopping or delaying tasks are reduced profits because the company incurs costs that reduce savings, or the company does not make sales. This can lead to a spiral of cost-cutting. You reduced headcount to increase profits, but it does not work, and so you have to reduce headcount further (and unknown to you, this makes it harder to deliver profits).
How Can You Improve Performance?
- When you eliminate people, you must eliminate tasks
- When you eliminate people, you must ensure customers get at least the same level of service in every way.
Earlier, we discussed the tasks that are being done as the company operates during the financial year. Notice we did not say the tasks that must be done. In every company, every month someone adds another task to the company. Typically, companies rarely systematically consider what tasks to stop.
Think of your company like your heart, for most of us as you get older your arteries start to clog up with cholesterol. This means your heart has to work harder to get the same work done, pumping blood through your systems. And while you are getting the same work done your blood pressure is higher.
In your company, the equivalent of cholesterol are those unnecessary tasks. Unless you eliminate those tasks, you will not deliver the improved profits you want. Also, unless you eliminate those tasks, your people will not have time to deliver more to your customers and to get more orders from your customers. If you don’t eliminate tasks, in the short-term, you might not notice a difference. However, in the long-term, you will notice a difference and each time you cut headcount it gets harder to deliver the improved profits. Help make it easier for the people left in your organisation to deliver results and deliver what your customers want.
If you are serious about improving your results, take time to eliminate tasks.
To determine which tasks to eliminate to improve your business results read our ebook: How can you deliver more with less?