The hits just keep on coming. It started last fall with the banking industry crisis and stock market meltdown that left most everybody shocked, awed and a whole lot poorer. These events triggered reactions, some knee-jerk, causing businesses to rethink and adjust their modus operandi to ensure that they could live to fight another day.
The government came to the rescue with the TARP bailout, followed by “Son of TARP,” aka the stimulus package. These elixirs included everything from stemming mortgage foreclosures all the way to fostering pork-laden catalysts to spur new jobs.
Culminating a now infamous all-night February congressional drafting session, Congress passed this imperfect panacea, more than 1,000 pages of legislation, and our new commander in chief signed the plan, making it the law of the land. This marked yet another well-intentioned but questionable “Hail Mary” government set of solutions. From the get-go of this economic debacle, few organizations escaped unscathed. Sales and profits withered and liquidity evaporated as consumers worldwide went on a protracted spending hiatus.
In response, companies around the globe started paring costs and programs. Virtually every day businesses proclaimed that because of the bold steps they were taking, they would ultimately emerge stronger while crossing their fingers and thinking, “From our lips to God’s ears.”
The question now emerging is: Were these newly minted methodologies and cuts penny-wise or just pound-stupid?
With the probability of little immediate relief from the sagging results on the horizon, management must again examine the newly made promulgations to ensure the decisions actually accomplished a goal.
In good times, smart businesses and organizations share the gains. Now, it is appropriate for companies to have their employees, suppliers and even tangential partners share the pain. The trick is that whatever is done must serve a purpose that can sustain the test of time. The worst scenario is eliminating something only to reinstate it, often at a much higher cost, because it was quickly recognized that the medicine was worse than the cure.
Most companies’ short list focuses on hunkering down and pruning excesses, be it people, processes or even unprofitable customers. Certainly, saving money in most cases makes sense, provided savings for the sake of savings don’t cause even further damage. As an example, is it smart to stop face-to-face meetings with your best customers just to save the price of a no frills, coach-fare plane ticket? Remember, if you’re not staying in front of customers, it’s a good bet your competition will be your more-than-willing substitute.
Not spending money to improve or maintain mission-critical undertakings can translate into huge blunders that companies will live to regret in the months and years ahead.
Here are a few penny-wise steps that could produce tangible benefits. Instead of arbitrarily implementing an across-the-board RIF (reduction in force), consider creative alternatives that will better serve the greater good of your employees, customers and business. Rather than the traditional spare-no-department layoffs of X percent of people, ask employees to take a temporary pay reduction. Turning this negative into a quasi-positive tells employees that they will need to endure this pay hit for, say, only six months. Then add the twist that normal pay rates will resume in November and December to make the holiday season just a little more tenable.
Do the math and determine if this savings tactic gets to the same bottom line number as more disruptive firings, while allowing you to maintain your full existing work force for the better days ahead.
Also, be creative with your suppliers. One example is if you have equipment coming off a lease, instead of replacing it with the latest and greatest updated version, make a deal to keep the older devise for a longer period of time and negotiate a meaningfully lower monthly fee. This is a real win-win, as your vendor continues receiving revenue on something that is possibly already written off of its books while you can reduce your cost.
Focus on the end objectives and consider made-to-fit alternatives, rather than using off-the-shelf traditional methods. Don’t be afraid to spend money to make money, and be weary of actions that risk saving yourself out of business.
Executives are paid to make the tough decisions and then sell them to key constituents, whether they are popular or not. Abdicating a thoughtful risk-reward assessment of significant economic counter-measures is not penny-wise and can prove to be painfully pound-stupid.
Michael Feuer co-founded OfficeMax in 1988. Starting with one store and $20,000 of his own money during a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling it for almost $1.5 billion in December 2003 to Boise Cascade Corp. Feuer is CEO of Max-Ventures, a retail venture capital/consulting firm, and co-founder and co-CEO of Max-Wellness, a new health care product retail chain concept that is launching in 2009. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at email@example.com.