Current economics have forced many CEOs to look closely at their businesses, at their bottom line. The most common action I see taken is cost cutting, oftentimes headcount. I’ve been a CFO for17+ years and spearheaded multiple turnarounds. Prior to that I was the senior most financial & operations executive for a division of a multi-billion dollar organization charged with stemming several years of low 7 figure (annual) red ink.
I’ve long held the belief that pure cost cutters are a dime a dozen, today that might be downgraded to a nickel. Losing operations are not a whole lot different than coping with a “flat” economy in my view. One micro, one macro. Surely there was a lot of sweat, hard, focused effort, getting our houses in order to enable informed decisions, good judgment and the like. Yet looking back, none of those situations were all that difficult to turnaround and none were focused principally upon cost cutting. I’d like to share some of those experiences. I’ll start with a snippet on staffing, but each of the primary efforts (I’ll cover in subsequent segments) that lead to success were concurrent initiatives.
Staffing – do you have the right headcount with the requisite skills at the right compensation? The only way to determine that is to have a fundamental understanding of the primary responsibilities of each manager’s fundamental job responsibilities. The only way to acquire that is to get into the trenches, roll up your sleeves and talk to them. It’s pretty easy to separate the wheat from the chafe, those who are handling their responsibilities well from those just going through the motions. Keep a keen eye out for redundancy. Task each manager with doing the same for every member of their staff and follow up. To keep this brief I’ll focus on sales and the back office / finance / accounting as examples.
Sales – “finders”, often times the engine of the company. Good sales persons are typically highly competitive, often self-motivated. Rank among peers and money their primary motivators in my experience. Even if I were CEO, if a superstar salesperson earned more than me in a given year I’d be OK with that. Have a well-conceived incentive program in place, with quotas but without caps, unless you’d prefer to have this year’s sale spill into the next for those who have topped out on your current plan. Consider the viability of plans that migrate to all performance based compensation; the non-performers will weed themselves out but give them every opportunity to succeed. Keep results visible – it’s a motivator. If your business isn’t conducive to complete performance based compensation, be careful with considering letting go marginal performers. Even those marginal performers may have some relationships that are loyal to them and at risk, if they depart. If it’s close, keep them and task the head of sales with the responsibility to remedy. The aforementioned dime a dozen guys would easily have terminated them yesterday, let’s give them until tomorrow and let the sales manager know that you’ve always looked upon termination as your own failure too.
The Back Office – “minders” deal largely with the past. The better ones are typically deadline / accuracy driven. Make sure they have them and know that you are watching. Are yours being met? My deadline for financials is COB day 5 following month’s end. In most cases that is achievable, don’t be fooled otherwise. Are they providing you with the key performance metrics you require in an at a glance format that meets your needs? Are they proactive? All too often the controller/back office may be doing a good job with reporting, managing A/R & A/P, payroll, etc. Where the shortfall surfaces is with forward looking vision. Rolling cash flow analysis, operating and capital budgets where the key is meaningful variance analysis perhaps with solutions, minimally with succinct communication to promote informed proactive decisions. A voracious appetite to analyze date for trends good or bad to promote pro-action? Expert with internal controls to promote veracity AND safeguard assets. The Association of Fraud Examiners estimates the average U.S. business loses 5% of Revenue to fraud and abuse each year. That’s startling. If you’d care to read more please see lower right, Browse by Tag and click on “Fraud”. Or you could rely on “not me” or luck. Are they offering up technology solutions to be promote efficiency? Providing performance tools for all disciplines to promote better management and foster teamwork? Analyzing compensation vs. any of the many readily available compensation studies? If all of this is being done, congratulations, you have a CFO, a “finder“. If not there’s a fair chance you are either doing too much of this with your valuable time that would likely be better used on business development or there’s a pretty good chance something is falling through the cracks.
Do you feel lucky? Did you notice, nothing on cost cutting yet? If your staff needs tweaking, they are out there.
In the Part 2 I’ll speak a bit about market, branding, pricing and positioning.
PS – To be fair, in one of the turnarounds headcount was reduced nearly 70%, principally by eliminating multi-office redundancy that was offset by putting the right persons in the right positions that resulted in a net salary savings of about 15%. Sure that was a cost savings, I wouldn’t call that cost cutting would you?