Nowadays,
there is almost no business which does not face the question of SURVIVAL.
For some, this is the survival of the entire business, while for
others it applies to a certain brand, sku or branch.
The GDP growth (if any) being almost negligible, the money
resources being dry, purchasing power plummeting, TOP-LINE growth which,
under normal conditions, is the MAIN driver of growth/survival,
lately does not seem to come and companies have to look at the BOTTOM LINE
and BELOW THE LINE figures to find the cash to keep going.
But it is truly rare that Leaderships of companies do the right
thing when they have to make a turnaround...
Usually, it all starts with the CFO writing in bold on
the executive summary of one of those periodic reports "We'd better
do something NOW to improve our profitability if we want to survive!"
and goes on more or less like the following...
The CEO immediately calls a meeting with the C level to repeat
what the CFO has said and to ask for a COMMITTEE (which normally will be one of
20 something committees he has to chair monthly!) to look at the issue;
normally this is a quick meeting as (s)he always is in a rush for a conf call
or top-top meeting, or simply another COMMITEE...
The CFO asks his/her people to prepare a gap analysis
of the planned and actual figures and makes a distribution of COST CUTS per
department. (S)he sends this to the members of the committee and calls
for a meeting to discuss these.
Of course it takes normally three to four times
longer than needed to gather this committee as almost always the schedule of
one or more people is impossible to match the timing. Believe it or not, some
do not really see this as a TOP PRIORITY issue!
Most of the time, nothing happens in this first
meeting as most of these busy people have not even opened the attachment of the
e-mail from CFO.
So, CFO presents once again what (s)he wrote in
his/her e-mail and verbally asks everyone to go back and find the savings they
need to provide for the survival.
They go back to their desks shoot a meeting with
their subordinates to find tens of good reasons why these savings are
impossible: Yes, the supplier is always ALREADY the cheapest possible to find
in the market, the advertisement agency ALREADY has cut its agency
commission, the factory is ALREADY working with the highest possible
efficiency. All the sku's and brands are vital (yes some of them hardly sell at
all, but they are STRATEGICALLY vital), all the departments are ALREADY working
with the minimum number of people...
So in the second Committee meeting, the CEO hears
what the C level team has to say and closes the meeting with,
well... NO results at all. The message is "We should sell more!"
The targets of the sales team are
increased, the unhappy sales people get even more frustrated when their
key clients either simply fail buying (into) those quantities or ask for huge
discounts to get rid of their already swollen inventory and YES, sometimes the
sales even fall below the ORIGINAL targets, by this PUSH!
Having wasted another quarter wishfully thinking of the
top-line growth to come and seeing the cash flow deteriorating
further, the committee gathers again this time to simply hear what the CEO
has to say.
The CEO takes a sip of his coffee, sighs and says:
"Well, there is not much we can do; we have to
cut the non-value adding costs!"
Don't be naive, there is not going to be a thorough
study to find these "non value adding costs", at the end of the day,
no one has the time or willingness to do this, so there are two POSSIBLY
"non value adding" cost lines to touch easily:
MARKETING & SALARY MASS!
Voila! Here is the answer!
Although the marketing people seem to be very very
SAD by this news, guess what! Actually they are relieved! Now they have a
golden excuse to explain why the sales went even further down during the year
closing presentation and next year's budget planning:
NO SALES WITHOUT MARKETING!
In the meantime, department heads start their own
witch hunt to decide on whom to lay off. This is normally a difficult task,
right? There is only one way to make it easier:
FIRE THOSE YOU DISLIKE THE MOST!
This is another great relief to explain why the tasks
are not carried out in full and by the deadlines:
MY TEAM IS NOW WORKING DAY AND NIGHT TO COMPENASTE
FOR THE LOSS OF HEADCOUNT!
Moreover, you will probably lose also some
functioning people to competition as they get frustrated by the extra pressure
put on their shoulders due to fewer co-workers!
In the meantime, you will keep on:
- producing in your 80% utilized factory while (most
of the time due to political reasons) your 20% utilized plant will keep on
sitting idle.
- taking big penalties (producing at a BUSY plant)
of high Minimum runs and lack of efficiency and this will lead to high
inventories and hence less cash.
- buying your raws, packs or services from the
"preferred" (most of the time, this means suppliers who have been
working for long with you) suppliers at higher than available prices.
- writing off by products or waste instead of selling them.
- not switching to another transportation model or a
transporter as nobody wants to take risks or work overtime to adapt
to a new one.
- producing the same number of sku's the 80% of which
bring less than 20% of the revenue and profit.
- spending huge marketing/trade marketing budgets
(divided by too many) in an inefficient way.
- losing vast amount of money to distributors, logistics providers, retailers
to penalize the consumer who finds you too expensive to buy.
By the time the management will understand that the route they
took was simply not sustainable (and usually this will cost some of them their
jobs), the hazard is too big to hide.
Yes, it is as simple as it seems...all this money, time and PEOPLE could
be saved if the team had the guts and will to critically look at their value
chain.
Human nature almost always stops one from taking criticism and
challenge in a mature way, so the only way to get people to look at their
processes and costs in a critical way is simply to ORDER them to do so!
The CEO should not buy into his/her subordinates' endless excuses
not to touch the value chain. (S)he should simply say: DO IT!
One of the biggest and most harmful corporate lies is
"We have no inefficiency in our system.".
There is always room for improvement in value chains and
only looking critically at your value chain, you can keep on investing in your
brands and people.
When the markets start growing again, what will determine the
winner will be:
1) Market share which comes through sound investment in your
(manageable number and diversity of) brands
2) People who, equipped with invaluable lessons from the hard
days, are ready to make your business flourish.
If you do not want to risk losing these two pillars of growth, go
and look under the VALUE CHAIN MAT!
How about starting TODAY?
Have a nice and efficient week!
