Soundings

The Six Million Dollar Cost Manager

BY ANDREW WILEMAN

The year: 1974. Oil crisis. Plummeting stock markets. Recession. But wait — here comes the Six Million Dollar Man, resurrected to save America, with zoom-lens vision and bionic speed and strength.

The year: 2008. Oil crisis. Plummeting stock markets. Recession. Where is Col. Steve Austin — or even Lee Majors — when we need him?

My book on how to manage and cut corporate costs hit the shelves last summer, just as the credit tsunami hit the beaches. While it argues that good cost management is crucial in every economic environment, these are truly extraordinary times. We are entering what will be the defining recession experience for a new generation of managers, who face a trial by fire, after two decades of growth.

So now, when I present from the book at seminars and conferences, I invariably get asked: “Things are very rough — nastier than we thought even a few weeks ago. Is there anything different we should be doing, over and above the cost-cutting norms? And what mistakes can we avoid?”

Better, Stronger, Faster . . .
Given this recession’s severity, certain cost-cutting themes will be particularly open to a better-stronger-faster push: Compress the time frames for action and results. Take an initiative that would typically require eight weeks to diagnose, eight weeks to reach consensus on, and eight weeks to implement, and get it all done in four weeks — or four days. Get the key experts and decision-makers in a room and say, “OK, we’ve only got today and what we know now; we can’t ask for more analysis or opinion-sounding; what are we going to do?” Make sure you’re working with an 80/20 focus on where the big simple opportunities are. I’m often surprised to find managers focusing on really complex, long-time-to-get-there-if-ever savings — such as consolidating different multi-country enterprise-resource-planning systems — when they could get 20 percent out of finance and IT costs by improving single-country efficiencies. Really raise the bar on people quality. Bite the bullet on people who don’t measure up, whether around their capability or their engagement. Don’t do this only at middle-management levels and below — take a hard look at the top teams. Leadership becomes even more critical in tough times; as Jim Collins writes in Good to Great, “get the right people on the bus.”

Early in 2008, I started work with a B2B technology-services firm in the United States on upgrading its field sales force, taking it from an old-fashioned, low-tech, customer-stroking role to a much more proactive and segmented professional sales activity. When the recession hit this summer, we decided to set aside our cautious, step-by-step reform approach, bite the bullet, and acknowledge that, really, if we zero-based and raised the bar to the proper level, only 60 to 70 percent of the current people were keepers. We’re now implementing that drastic reduction — and expecting to increase sales impact on a 30 percent lower cost base.

Dig into “forgotten” costs. One of the best tests of possible opportunity: Are there costs for which it’s hard to find the line manager responsible? Good places to begin looking: insurance, maintenance, legal services, vacant properties.

Question what customers really value. Do they truly care about those extra service touches or that nice packaging flourish, or would they trade them off for a lower price? And question whether those customers who do value them are really profitable.

. . . and Different

A deep recession does create the opportunity to make moves you probably would not make in a mild recession — moves that will leave you stronger if you do them right.

Probably the biggest is the option of reducing base compensation, particularly for salaried (non-hourly) staff. In normal times, this is almost impossible to do outside Chapter 11; it’s hard even to hand out increases below average wage inflation. But when times are really tough, this option does open up — out of necessity for business survival and because high unemployment limits the risk of losing key staff. (During the Great Depression, as an extreme example, real wages fell 25 percent as unemployment rose to 25 percent.)

This is actually one of the real opportunities that a deep downturn creates for businesses burdened with high legacy wage levels — those being creamed by younger, lower-cost competitors. Airlines and automakers are obvious examples.

The key risk, of course, is that disgruntled workers look to leave as soon as they get a chance, and it’s usually the best people who head for the exits first. So if you take this step, consider adding back a variable upside element to the pay package, to lock in the top performers for better times.

Switch capital-expenditures prioritization from a net-presentvalue basis to a straight cash-payback basis. It’s definitely something you wouldn’t do in a mild recession, but any risk of running out of cash, or of breaching banking covenants, creates such a huge marginal cost of capital that discount-rate calculations become almost academic, and speed of cash payback is what matters.

Re-evaluate risks. For example, bad debt can shoot up and need special attention and, perhaps, extra cost investment.

Sacrifice information purity for action and cost saving. Defer that ERP project — they always cost three times what the consultants say, take twice as long, and suck up management time and energy. Wait for better times. (Private-equity owners — generally ERP-addicted data hounds — won’t like this.)

Things to Avoid
Don’t stop focusing on the revenue line while you deal with costs. Weaker competitors will get shaken out over the next two to three years, and you want to pick up more than your fair share of their customers. One French building-materials distributor had hundreds of delivery vehicles out on the roads nationally every day, passing thousands of building sites that could be new sales opportunities — but no one was tapping this huge sales resource. We put in a simple e-mail and text system so that drivers could easily send leads to their nearest depot, and we gave monthly prizes for the best leads, with rapid results.

Don’t stop investment in e-commerce. Competitors emphasizing e-commerce will win big in this down cycle. In retail sectors, their lower operating leverage gives them much more P&L resilience than store-based retailers. And customers in all sectors now expect to interact efficiently with businesses online.

Don’t over-squeeze core suppliers, on price or on terms. Supply disruption in key lines can kill sales and customer loyalty. Driving high-quality suppliers out of the market could reduce your margins in 2010.

Don’t get sucked back into the M&A game too early. Don’t listen to your I-banker (if you still have one). Values may bounce around like dead cats, but they could trough much lower as corporate debt problems come to light through 2009. Cash will be king.

Don’t think it’s over when there’s an uptick in 2009. Learn from previous cycles. I just did a forensic analysis of the last deep cycle (1988-93) for a hard-hit client. In 1989, the company cut costs judiciously and effectively, but management thought it was out of the woods in 1990, let cost creep back up, and got hammered in the trough of 1991. The year 2010 will almost certainly be as tough as 2009.

In these tough times, we all need to be Six Million Dollar Cost Managers. We can rebuild; we have the technology. We can make ourselves better, stronger, faster. Welcome back, Lee! Lee!

ANDREW WILEMAN is a U.K.-based consultant to CEOs and board-level clients of large multinationals, and author of Driving Down Cost: How to Manage and Cut Costs Intelligently. He wrote “Saving the Day,” in the September/October 2008 issue. He can be reached via www.drivingdowncost.net.

How to Lose

BY SETH GODIN

Actual conversation at a local shoe store:

“Do you have dress shoes in a size 6?”

“No, I’m sorry, we don’t.”

“We’re fromout of town. Do you know any place we can get some?”

“I’m sorry, I don’t. Perhaps you’d like some in a size 8?”

Now, what are the chances that someone who wants a size 6 is going to buy an 8? Zero. The game is over. You lost.

Instead of feigning ignorance about the whereabouts of your competitors (you really don’t know where other shoe stores are?), and instead of pretending you don’t have a phone book, what would happen if you actually spent that spare minute being incredibly helpful? “Ask for Jimmy! Tell him Sal sent you . . .”

Of course, the recipient of this friendly advice would tell everyone at the wedding exactly what happened. And some of those folks wouldn’t be from out of town.

Marketers, salespeople, athletes, and politicians spend their days losing. Losing RFPs, losing someone browsing through a store, losing a race. If it’s close, the right thing to do is to lean into it, to persevere, to push at the end when it can really pay off. But what about when it’s not? What happens when the RFP doesn’t match (at all) what you sell, but the competition is a perfect fit?

If you’re not qualifying people relentlessly enough to have many opportunities like this, you’re not really qualifying them. You’re just spending all day grabbing what you can grab. It seems to me that this is the perfect opportunity to be a statesman. This is when you earn the right to be seen as a trusted adviser, not a self-interested shill. Two months or two years from now, when you interact with that person or organization again, we’ll remember that you were the one who spoke up on behalf of the competition, the one who helped us find a better fit, the clearly disinterested adviser who helped us choose between the two remaining good choices. Your ego might not enjoy it, but in the long run, your organization will.

SETH GODIN is author of numerous books, including, most recently, Tribes and Meatball Sundae. From his blog, at sethgodin.typepad.com.

The Trouble With Leaders and Leadership

BY MIKI SAXON

I really dislike words that have no definition other than a different form of themselves.

Leader: a person or thing that leads.

Leadership: the position or function of a leader.

Talk about something with no real meaning — except when looking at the man-hours spent teaching and writing about it or the hundreds of millions of dollars spent on acquiring it.

And I find the practice of identifying “leaders” early in their careers particularly repugnant for two reasons.

First: The idea that you can identify future “leaders” from their actions on the playground or in high school or during their initial working years is inaccurate at best and stupid at worst.

Those identified as kids are the ones who excel at getting noticed, love the spotlight, have a good story to tell, and are typically attractive and mainstream. The nerds and misfits are rarely noticed as future “leaders” — think Steve Jobs.

Picking them out for special training during their first five years of work eliminates all those who work for bad bosses or for companies where entry-level hires are grunts with no real responsibility.

Choosing them because they have MBAs is really ridiculous. All the degree proves is that they could afford grad school (either had the money or went into debt) and that they made it through. That’s it.

Further, the “early leader” approach eliminates all those late bloomers, giving them far fewer opportunities to excel.

The second reason is much worse: Those “chosen” start getting extra attention and mentoring from day one of being identified, so the traits that got them noticed get stronger. Stronger isn’t always better.

They are anointed, singled out for greatness — they are special.

Being special sets you apart; suddenly you’re better than the others, and that means that there must be different rules for you because you’re special, better — and entitled. It’s an attitude best summed up by Richard Nixon when he said, “When the president does it, that means that it is not illegal.”

And that sense of being anointed a “leader” is partly responsible for the current debacle.

MIKI SAXON is CEO of RampUp Solutions, a provider of culture, retention, and motivation solutions for start-ups and growth-stage companies. From her blog, at leadershipturn.com.

Hostages to Disappointment

BY JAMIE AND MAREN SHOWKEIR

We were on a courtesy bus provided by a large hotel chain, heading to the airport. Without provocation, the bus driver began haranguing his captive audience about how terrible it was to work for the hotel. The management was unjust, he said, the employees were exploited, their practices and policies were stupid and unfair. On the fifteen-minute ride to the airport, everyone was held hostage as his critical rant persisted. Upon arrival at the airport, we were all experts about the failures of this hotel in the treatment of its employees and customers. Relieved to get off, we boarded our flight hoping the same kind of monologue wasn’t on the pilot’s agenda.

After the incident, we asked ourselves, “How is it that a large organization like that hotel chain has employees who will represent it to customers in such negative and deprecating terms? How does a business survive this?”

Employee cynicism is not restricted to the hotel business. Listen to the conversations you have at work. Listen to the conversations employees have among themselves at any place of business. When you’re at the grocery store, the mall, restaurants, the airport, or the bank, pay attention to how people are conversing about their jobs. We’ve even heard call-center service representatives trashing their employers as their customers listen helplessly on the other end of the line. Disappointed employees spewing their cynicism about the workplace — within earshot of their customers! When that kind of cynicism is so pervasive, what does it say about the organizational culture and the conversations that sustain it?

The cynicism that results from disappointment is among the most serious problems faced by organizations today — perhaps even by the world as a whole. Think about it: We have no shortage of knowledge, technology, methods, resourcefulness, creativity, or ingenuity. But when a population sees the world as a disappointing place to be and, as a result, chooses to withhold hope, optimism, and commitment, none of the other qualities can be employed to fullest advantage. Cynicism is without a doubt the largest obstacle to change and progress.

The world is a disappointing place, and we all have an overabundance of data to support that view. When we work in organizations, with groups large and small, we always ask people to raise their hands if they have never been disappointed. The response is usually laughter, and often a rueful shaking of the head. Never, so far, have we seen a raised hand.

JAMIE and MAREN SHOWKEIR are the principals of Henning-Showkeir and Associates, a consulting firm specializing in workplace satisfaction. From Authentic Conversations: Moving From Manipulation to Truth and Commitment (Berrett-Koehler). ©2008

HR: YOU’RE DOING IT WRONG
The Real War for Talent

BY LAURIE RUETTIMANN

If your human resources leader walks into your office and tells you that there is a war for talent in corporate America, you need to fire that chump on the spot.

I am here to tell you that there is no war for talent. During tough economic times — when earnings are down and the cost of doing business keeps rising — it is totally negligent to blame an inability to recruit and hire exceptional employees on a lack of viable candidates in the marketplace. Great candidates are everywhere. They are falling all over themselves to work for great companies with strong brands and big ideas. The concept of a war for talent is a marketing strategy conceived by rinky-dink headhunters and embraced by HR departments to justify the exorbitant cost of filling a position.

OK, you don’t believe me: If there is no war for talent, why are you having a hard time attracting candidates? Some consultants will tell you that your biggest obstacle is your out-of-date employment brand. They will recommend expensive communication programs, complete with glossy brochures and flashy websites, to liven up your image in an attempt to lure the elusive Gen-Y employees to your organization.

Others will tell you that you lack the appropriate enterprisewide software program to manage your recruiting process. They will recommend a capital investment that leads to an online applicant-tracking program more bureaucratic and cumbersome than the simple recruiting process you had to begin with.

I believe the answers to your recruiting issues are rooted in old-fashioned common sense. The way to improve your talent-acquisition process is to hire the most experienced and credible HR leader from the staffing industry. You can hire consultants and lawyers to weigh in on compliance and legal issues, but if your VP of HR lacks direct experience with sourcing and recruiting professionals in your industry, you are doing it wrong.

It doesn’t end with the VP position, though. Old ideas, failed processes, and incorrect assumptions are pervasive. Once you have invested in a principal who can plainly and succinctly communicate a talent-acquisition strategy on behalf of your company, task that individual with outsourcing many of the commoditized HR activities, as they exist today, in order to use the remaining headcount to focus on the mission: acquiring talent, developing your workforce, and growing the next set of leaders in your company.

There is only one war being waged in corporate America, and that’s the war against mediocrity. If you are doing HR right, you should eliminate any professional whose role isn’t directly tied to acquiring the best and brightest employees for your company. Hire the very best shared-service providers to focus on commoditized tasks related to personnel management. Unburden your HR department from administration, outsource anything that isn’t core and critical, and demand that your HR leaders focus on retaining and developing your most important asset: your workforce.

LAURIE RUETTIMANN is an HR professional based in Raleigh, N.C. She blogs at punkrockhr.com.

YOU CAN’T THREATEN PEOPLE TO BE HAPPY

BY FRANK ROCHE

I was just talking to someone who was telling me about the culture in her company, where people are being called in to “talk” about their attitudes. They’re being warned that if morale doesn’t increase, and if their griping doesn’t end, there will be repercussions. I couldn’t make this up.

Yeah, you know what works? Telling people to be happy while the friggin’ company is falling to pieces. That always works . . . just about as well as telling your teenager to stay in for an evening of family conversation.

Did I mention what group of managers was doing that little “Don’t gripe, be happy” thing? You know it already. HR. Yep, human resources. (Don’t even get me going on what requirements there are to be in HR — like maybe some perspective or even a class on human motivation. Call me crazy.)

HR folks: People are scared. They’re gonna talk, and they’re gonna gossip. No matter how much you tell them to stop it, you won’t be successful. Know what does work, though? Making your workplace successful and a place where people want to talk about what needs to be done and how you’re gonna make lemonade out of the lemons given to us in this economy.

FRANK ROCHE is a partner at iFractal, a Philadelphia-based human-resources consultancy. From KnowHR.com/blog.

IF THEY’RE TOO BIG TO FAIL, THEY’RE TOO BIG, PERIOD

BY ROBERT REICH

According to outgoing Treasury Secretary Hank Paulson, the biggest Wall Street banks getting money from the government are just “too big to fail.” Fed Chairman Ben Bernanke uses a different euphemism — he calls them “systemically critical.” The point is that if any of them goes down, it could take the whole financial system with it. So we taxpayers have to keep them up.

We’re hearing the same argument elsewhere in Washington for saving General Motors. It’s just “too big to fail.” So Congress, last December, considered a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler. Pardon me for asking, but if a company is too big to fail, maybe — just maybe — it’s too big, period.

We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line, policymakers decided that antitrust would only be used where there was evidence a company had so much market power that it could keep prices higher than otherwise.

We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful. Too powerful in that so many other companies depended on them, so many jobs turned on them, and so many consumers or investors or depositors needed them that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence — of a sort that might gain them extra favors from Washington.

Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies. They’ve prodded Bank of America to take over Merrill Lynch and Countrywide and JP Morgan to acquire Washington Mutual and Bear Stearns. And now they’re urging General Motors to absorb Chrysler.

So we’re ending up with even bigger giants, with even more power over the economy and politics, subsidized by taxpayers, and guaranteed never to fail because they’re just . . . too big.

ROBERT REICH is former U.S. Secretary of Labor. From his blog, at robertreich.blogspot.com.