Cut Costs The Smart Way

 

My article was featured in CATS Recruit Section, page C26, of The Straits Times on 11 June 2009. We have it reproduced below for your reading pleasure.

There are costs involved in manufacturing a product or providing a service. In fact, every activity in an organisation costs money. And prudence would have it that money in any business should be well spent or invested.

Cost is, undoubtedly, a key factor to competitiveness. As organisations face the current global economic challenge, the pressure now is even far greater for them to find ways to reduce their operating costs to remain profitable. But it has also become increasingly difficult to compete on price alone.

For businesses to remain profitable and viable over the longer term, companies will have to continue to satisfy the needs of their customers in more efficient ways, demonstrating value for money.

Prominent American quality consultants Armand Feigenbaum and James Harrington have pointed out that 25 to 40 per cent of operating costs result in waste. Separate studies undertaken by the American Society for Quality (ASQ) have also shown that waste can go as high as 40 per cent of sales.

Waste is any resource-consuming activity that adds no value for the customer. For most organisations, customers are the users or consumers of their products, services or both. Clearly, the focus is on external customers. But identifying waste can and must also be applied to the support activities that serve internal customers.

High Costs

In the past, there was insufficient information about production and service costs. Hence, there was limited scope for comparisons and benchmarking. Organisations, as a result, were able to pass on their high costs of production and services to their customers and continued to do so for a long time.

Nowadays, customers are more well-informed about processes and the service delivery supply chain. They are now able to analyse and compare the cost structure of their supplier organisations to determine where they might be able to derive highest value for the money they pay to acquire goods and services.

Limitations

In traditional accounting, organisations may know their total revenues and costs to the penny. But they have no idea how much they throw away every day on plain simple ineffectiveness, inefficiency and waste.

These are not visible on financial reports because traditional accounting methods do not provide a means of separating value-added activity from wasteful or low-value activity. As such, they do not show the high costs of ineffectiveness and inefficiency within the organisation.

Reducing Waste

Since traditional accounting methods have their limitations, the management of most organisations attempt to control inefficiency and ineffectiveness the best they can without proper tools and metrics – resulting in much wasteful activity.

If your accounting systems are of little help and your management practices lack the knowledge to be lean and productive, then how do you identify waste and unproductive costs?

There are two approaches. The first is a variation of cost accounting and is called activity-based costing, or ABC. It is an excellent system for identifying low-value activity, but it has drawbacks. It is a formal accounting system that parallels existing systems; it depends on considerable input from large numbers of individuals who already are working at their time capacity limits, and it requires a high level of system support.

The second approach is one with assessment and problem-solving capabilities and is called the cost of quality or COQ.

Improve Processes

The biggest opportunity organisations have to boost the bottom line comes from improving their business processes. The survival of many organisations is dependent on these improvements.

In many companies, management can make more profit by cutting unnecessary costs in half than doubling sales. This can be accomplished without hiring one new person, building a new facility, or finding one new customer.

Organisations must therefore identify unnecessary costs in the business processes and take action to improve the company’s bottom line.

Organisations must help their employees recognize wastefulness, maintain a high visibility of what these are, systematically reduce non-value-added activities and reducing costs the smart way.

An organisation that focuses on profit may have maximum profits in the near future. But an organisation that focuses on its reputation of being the highest value provider will provide the best return to its investors in the long haul.

If you like this article, please subscribe to our blog and get our Free Report on “10 Secrets to Successful Employee Engagement”. If you have comments, we would love to hear. Please post them below.

P.S. To find our more about this topic, Register NOW and enjoy early bird discounted fee (by 19 June 2009) for our 1-day workshop at ST701 Professional Development Workshop to be held on 26 June 2009. Please log on to www.jobs.st701.com or email to st701@sph.com.sg. Alternatively, you may also call 6319 5979 / 6319 5923.

Is Your Organization Ready For Quality Leadership Culture?

It is never too late if you are planning to build a quality leadership culture for your organization. These are challenging times and only companies that continue to meet or exceed customers’ expectations will come out stronger from this period of economic malaise. Frankly, no organization or business can do without it if they plan to be around for long.

To help facilitate success, at least a few top managers of the group or company must be on board. We provide here a simple Checklist that allows you to do a quick assessment of your organization’s readiness to implement quality leadership culture.

Checklist For Quality Readiness:

You need to be very honest when using the checklist above. Count the number of checks in the list above after you completed it. If you have less than 6 check marks, you might want to try following the steps recommended in my previous article entitled “How To Start Right Building A Quality Service Culture” before embarking on much larger scale campaign.

In Closing

Remember that Quality usually starts with just a few people in any organization. However, the higher those people are in the organization, the more likely the process of building a quality leadership culture will succeed.

If you like this article, please subscribe to our blog and get our Free Report on “10 Secrets to Successful Employee Engagement”. If you have comments, we would love to hear. Please post them below.

How To Create A Climate For Positive Engagement

You have the power to create the ideal environment for communication, one that creates a positive experience for you and others around you.

If you know you have the skills to work with others effectively, your attitude toward them is going to reflect that – you know you’re ready to address whatever may warrant your attention. You are less likely to have your back up against the wall or be defensive. You are also less likely to be overly cautious, holding back. Instead, you’re confident and willing to engage.

Choosing a mind-set to make a good impression of yourself will influence your behaviour – in all sorts of ways. The tone of your voice will be positive and engaging. Your listening skills will be sharpened and at the ready. And although in a telephone conversation your body language would not be visible to the other person, it will nonetheless manifest itself in the way you come across. If you are in a face-to-face setting, your body language will certainly reflect the positive words you use in the conversation.

When you consistently express this mind-set, you will influence the behaviour of people around you. They will respond in a different way than they otherwise might thus create a positive environment for all.

Much of what we are describing comes back to the importance of choice. With a mind-set to make a good impression of yourself, you make the choice to respect the other person and treat him or her as you would have him or her treat you; your attitude and behaviour would naturally reflect that commitment. This applies to personal relationships as well.

The bottom line is with a mind-set to always make a good impression of yourself, it helps you establish a genuinely respectful relationship between you and others. Even if you have to tell the customer that his product was back-ordered or that his appliance sent in for repair isn’t ready for collection - or must say no in any fashion – the customer can still feel that you have handled the situation in such a calm, confident, professional way that he or she would still choose to have another contact with you in the future. 

If you like this article, please subscribe to our blog and get our Free Report on “10 Secrets to Successful Employee Engagement”. If you have comments, we would love to hear. Please post them below.

How To Bring About change

Transforming an enterprise from an organization orientation to a process centric is a difficult culture change. It requires a major change in the way the organization is managed.

Change is not easy. Everyone is for change. The problem is everyone should change except me. Why do I need to change? I have proved that this is the right way to do things.

Change is not a simple process. It requires a lot of thought, a well developed plan, a sophisticated approach, discipline, emotional intelligence and unfaltering leadership. Different people react differently to change. Expectations would need to be managed realistically. Fear of the unknown, untried, untested way is natural but needs to be overcome.

Here are 10 rules that should be used to guide your change process:

1. The organization must believe that change is important and valuable to its future.
2. There has to be a vision that paints a picture of the desired future state that everyone sees and understands.
3. Existing and potential barriers must be identified and removed.
4. The total organization must be behind the strategy to achieve the vision.
5. The leaders of the organization need to model the process and set an example.
6. Training should be provided for the required new skills.
7. Measurement systems should be established so that results can be quantified.
8. Continuous feedback should be provided to everyone.
9. Coaching must be provided to correct undesired behaviour.
10. Recognition and reward systems must be established to effectively reinforce desired behaviour.

Change is crucial for a company’s survival but many companies resist change until it is forced upon them. In a research done by McKinsey & Co., it noted that the leaders of companies in crisis are often in a better position to achieve a true transformation. Why? The survival of the firm is at stake.

Change is an inevitable part of life and business. Don’t wait till it is too late. Help your people embrace rather than resist it.

If you like this article, please subscribe to our blog and get our Free Report on “10 Secrets to Successful Employee Engagement”. If you have comments, we would love to hear. Please post them below.

How To Make That Paradigm Shift

Top executives must switch from a know-it-all culture to one where it is okay for them to learn from empowered employees at the lowest ranks and from the outside.

One of the key reasons for Japan’s huge success in continuous improvement, or kaizen, is that management looks for positive ways to acknowledge progress, not negative ways to punish people for not meeting goals. Unlike traditional leadership whose attitude is “We’re here because we know it all. That is why we get paid big bucks”, Japanese quality service leaders do not know all the right answers; they know all the right questions. These leaders, including their CEOs, go to conferences, seminars and workshops with a hunger to learn about best management practices.

For a quality service culture to succeed, management’s attitude must make that paradigm shift from the old to the new. The following list suggests where leadership attitudes must change.

OLD ATTITUDE	NEW ATTITUDE
Negative, reactive culture Employees are expendable Defects are unavoidable Attitude is “we fixed that” Blame on individual Management is boss; customer is peon Management has the right answers Focus is on what is said Focus on recruiting and sales Power is in manipulation Highly competitive	Positive, proactive culture Everyone is a winner Aim for perfection Continuous improvement is religion – kaizen Blame on system Customer is boss; manager as facilitator Management has the right questions Focus is on what is done Focus on retaining and training Power is in success of company Highly cooperative and competitive

If you like this article, please subscribe to our blog and get our Free Report on “10 Secrets to Successful Employee Engagement”. If you have comments, we would love to hear. Please post them below.

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