How Big Business Saves Money
Ready? Sell more products! Boom! Please send the dinner invitations to my secretary, put the champagne in the fridge, what’s the phone number of that Nobel Committee?
Oh you need more than that . . . let me see, how about half the costs? Boom! Phone the Dinner Committee, put the champagne in the secretary . . . erm . . .
There is a story that I often repeat from the time the Global Financial Crisis swept through the world in 2008 and arrived at Germany’s doorsteps, am unsure if it’s hypocraphyl or not but let’s say it’s true. At a time when companies were either going bankrupt or letting go of employees like emptying your waste paper basket, German companies were reducing work days to four days a week. Why increase unemployment and make a few people suffer immeasurably? For a 10% cost cut across the board, implement a 9-day fortnight. Need some drastic cost saving, implement a 4-day week to save 20% of your costs.
When you make cuts across the board rather than at just a certain, specific group, people care more, people buy into it. “Hey everyone, we’re not doing so well, so we’re all going to take a pay-cut, no exceptions”. Yeah ok, seems fair enough. The more common corporate view though is if we’re deviating from our route, someone is going to suffer. If I’m an Executive driving a Mercedes and start erupting about the need for redundancies, what kind of reaction would you expect from the employees? I know what I’m thinking, and it’s laced with titillating expletives.
The awesome Simon Sinek related the story of another company that, in times of financial turmoil, decided to give all their staff four weeks of unpaid leave that they could take any time they liked. The result? Without prompting, employees traded with one another, so that the more fortunate exchanged holiday with those that needed the regular income. How amazing is that? Put up the bunting people, humanity isn’t just a bunch of washed-up selfish bastards after all!
Another way many companies have tried to reduce the cost of their employees is by process improvement (saving costs) or offshoring. The latter is a model that can work, but which requires substantial investment to be successful, far more than a company thinks is necessary, which is why it often fails. It’s effectively like buying a cheaper pair of trainers then after 6 months buying glue for the sole (or soul, eh?), and then some new laces, and the tread has worn quicker and then when you’ve factored the time taking for doing all that stuff . . . oh my God you’ve spent how much?!! I’d hazard a guess that when a company offshores, instead of saving the 40-50% on wages, when you factor in quality, speed, efficiency, training, you’re probably saving 5-10% at very best. At worst, you’ve just tanked your company.
There are of course complaints to offshoring in that jobs are lost and pushed overseas, and yet eBay and Amazon have been offering that for years. Globalisation seems to be one of those things that is considered favourable until it impacts you directly. The talk of the town is now near-shoring, or as everyone else calls it, regionalisation. Same problem, but less costly as you’re not travelling as far and the time zones may work more in your favour, yet the wages are higher.
But essentially companies must simply balance cost and revenue, supply and demand. Simples. Which is why there are millions of companies worldwide and only a handful are successful because that balance is bloody hard. But if you’re company are going through lean times, think creatively to reduce costs rather than recouping for the short-term. Reduced working days and even more working from home days (reducing the cost of your real estate) all help the cause. Oh, and sell more products. Where’s that damn champagne?
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