|
If you want sustainable lower costs, get your reliability processes right. If you simply cut costs, your results are not likely to be sustainable. You may see some immediate improvement over 6-12 months, but over subsequent years, there will be a price to be paid in poorer performance and higher costs. Ron Moore, The RM Group In the Perils of Cost Cutting, published in 2008, a time when there was widespread emphasis on cost cutting, layoffs and generally cutting back in order to survive the so-called global financial crisis, we sounded a cautionary note to this business strategy. The basic message of the paper was to minimize cost cutting since it has a low probability of success and - more importantly - to get your processes right so that your costs can come down in a sustainable way, positioning you to succeed after the economic recovery. The approach proposed was somewhat contrary to Jack Welch's admonition to "Cut costs deeper than you'd like..." Granted, during times when market demand and prices are crashing you may have to cut costs and preserve cash just to survive. But, it appears that most people are not able to follow Welch's advice effectively - a study of the S&P500 over an 18 year period, published by Mascio in 2010, concluded that those who cut deepest delivered smaller profits as long as nine years after a recession. The data seems to go against Welch's advice - or perhaps too many take his advice too literally. Costs are a consequence of your processes and practices and, cost management is not the same as cost cutting. Cost management focuses on waste elimination and process improvement. Cost reduction through cost management is essential.
Corporate Cost-Cutting Programs Fizzle McKinsey research finds only 10% of cost-reduction programs sustain their results three years on.
Along with controlling costs, there also continues to be great emphasis on safety in most organizations worldwide. To paraphrase, ‘safety is our first priority' is a frequently repeated mantra. But this stated priority apparently poses a dilemma for most businesses. That is, in a period when a company is doing cost cutting, can it also improve safety performance and sustain fewer injuries? What about environmental performance? Business risks? Can we improve all these measures simultaneously? In other words, can we have it all? My answer is a qualified yes! The qualifier relates to the processes and practices in place. Let's consider a recent example where a company was not successful in lowering costs while improving safety performance. Recently, in the Wall Street Journal, Chazan, et. al., made the argument regarding BP that cost cutting and safety clashed, and when conflicting priorities were encountered, cost cutting won, to the detriment of safety and of BP overall. When one considers the recent Gulf oil disaster, along with the Alaska pipeline leaks and the Texas City disaster, it appears that BP clearly didn't have the processes and practices in place for 'having it all', and put the safety, environmental and overall business performance of the organization at huge peril. So, how can we have it all and sustain our performance? Click here to download the paper, The Rewards of Reliability: The Data Demonstrates Fewer Injuries, Lower Costs and Business Risk, and Improved Environmental Performance, by Ron Moore, Managing Partner, The RM Group, and learn the necessary steps for ‘having it all'.
Follow us on:
  
|
