All business leaders today are looking for ways to decrease costs, while increasing productivity and profit. Many businesses today are taking a one time profitability boost by reducing costs at the expense of the employees.
Cost cutting always seems to be the first action taken by companies as they try to increase their profit. I understand that some businesses are in trouble and this may be their only recourse. However, many businesses rely on this cost lever rather than looking at all the other options available to increase profitability.
Henry Ford
Most people know that Henry Ford was quite famous for piloting the assembly line factory and for increasing the productivity of his factories. But did you know that he was able to simultaneously increase profits while decreasing production costs, increasing productivity, and increasing employee’s wages?
Ford knew that increasing the wages of his workers would increase their productivity (which decreases costs) and increase their standard of living, allowing them to buy more goods and perhaps even a new Ford car!
Rather than cost cutting at the expense of his employees, Ford looked for ways to increase profitability of both his factories and his employees. He realized that you cannot cost cut your way to greatness!
As Seth Godin says; “When you enable your workers (and your customers) to do more, connect more, produce more and get paid more, you create a positive system. The goal isn’t to clear the table, the goal is to set the table.”
Setting the Table for Growth
I have written about this many times in the past. Business leaders cannot keep doing the same things we have always done and expect to get different results. We must challenge the status quo and look at our businesses through a different lens.
It is time to think differently and do things differently! Or, we can join our competitors in the race to the undifferentiated bottom!
What follows are a few levers that an organization should be using now to avoid the death spiral of “cost cutting” in the future:
- Implement a culture of innovation
- Reward employees who productively challenge the status quo and create new and profitable ways to do business
- Continuously educate and develop employees
- Create cross-functional teams that attack the company’s most vicious problems
- Build a “WOW!” culture where the customer is always first and foremost on employees minds
- Closely watch technology and industry trends and hold employee forums to debate these trends and identify threats and opportunities
- Get your employees involved in industry associations and think tanks
- Encourage your employees to sit on advisory boards of non-profits or of non-competing businesses (this gets your team out of their comfort zone and the problems/opportunities they encounter can often be leveraged productively into your business).
- Build “innovation” time into your work schedules so employees have a designated time period to work on innovative ideas that could benefit the business
Take Action
Do a quick evaluation of your company and determine imminent threats and risks. Are there risks that you need to mitigate as soon as possible? Go ahead and implement a plan to do this.
Now, take a hard look at your overall company culture. Is your culture leveraging at least 75% of the levers shown above? If not, what actions do you need to take to start building this culture so that you are positioning your business for future success?
Finally, review these articles for more information:
- Relentless Cost Cutting Will Kill Your Business
- Would You Rather Choose the Path of Preservation or Innovation
- Differentiate or Die
“…you get at least four times the market value for a dollar of profit that comes from revenue growth versus a dollar of profit that comes from cost reduction.“ Greg Brenneman
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This plan of increasing both company profit and employee wages would be the ideal path for a business to grow. Creating a culture geared towards productivity really is the way to go. Another brilliant post, thank you!
Thanks for the feedback Nathan!