During a “low-hanging fruit” project to cut unnecessary costs at Franklin Bank, teams within the company identified $1.7 million in savings this year. They didn’t have to look far. For instance, by changing UPS deliveries from next-day a.m. to regular next-day, the company saved $96,000.
“When you are operating in good times, you lose sight of some of these costs,” says Craig Johnson, president and CEO, Franklin Bank, Southfield, Mich. “When we come out of this economic slump, by keeping the discipline we established during tough times, we will position the business to grow and expand.”
Before granting funds to any company, Johnson wants to know what they are doing to maximize what they’ve already got. How is the organization improving efficiencies, and what operating costs have been trimmed?
Smart Business asked Johnson to discuss ways to find that fruit, why that will please your banker and how you can keep employees happy while you embark on a cost-cutting program.
How can a company start a program to identify cost-cutting opportunities?
Many organizations hire outside consultants to evaluate the business in and out, perform a cost study and identify areas where operating efficiency can be gained. They dig deep into the organization, interviewing workers at all levels and spending time with the books. Imagine the scene from the movie ‘Office Space’ when the change-management consultants meet with employees in a room to discuss their job descriptions and what value they add to the company. By ‘digging deep,’ these consultants often find ways to cut staff. They generally charge for their services by taking a percentage of the cost savings.
You don’t need to go that far to drastically reduce expenses. Start in-house first and create a low-hanging fruit project at your organization that involves your whole team.
How can a low-hanging fruit project involve the entire organization?
By involving employees in a company effort to identify exorbitant costs and improve efficiencies, you can build morale and empower workers at all levels to make a difference. There are various ways to involve employees. You may create teams, perhaps dividing the staff by business segments you want to analyze or even by itemized expenses, such as postage, energy or vendors. Each team is responsible for identifying low-hanging fruit in its area places where operations can be tightened and costs cut.
Employees recommended that we change office supply providers, which has saved us $20,000 year-to-date. We regularly announce the progress of the low-hanging fruit project and reward employees for identifying areas of improvement.
How should the program be presented to employees?
Before you launch the project, it’s important to share with employees why the initiative is so critical. Explain what reducing costs will do for the company’s bottom line, its competitive edge in the industry and the future of the organization. And, most relevant to your employees, what will these cost savings mean to them if they are accomplished? Will you be able to continue covering health insurance premiums? Offer salary increases? By explaining to your people why the effort is critical to maintaining the success of your organization, employees will be more apt to take an active role in the results-driven initiative. And they may understand why some of the tough cuts are necessary.
For instance, if you know you must eliminate a position at your company and your staff will be required to put in extra time to fulfill that role until your budget allows for a new hire, reward them by creating a bonus pool. You may replace a $35,000 salary with a $15,000 pool to be divided among the employees who are picking up extra slack. Rewards for being part of the effort can also include a nice dinner out or tickets to a show.
What do cost-cutting measures mean to the bank when a company requests a loan?
Your banker will want to know what you are doing to extract funds from within your organization first, before approaching the bank for a loan. Be sure to document the steps you take for cost savings and revenue opportunities. Many times, companies go to a great deal of trouble to switch vendors and fine-tune a process in their company to make it more efficient, but they do not document the results. Track the numbers. How much did you save, and how did you do it? Assign someone in your company to track profit-and-loss statements against historical numbers.
CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield, Mich. Reach him at firstname.lastname@example.org or (248)386-9860.