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11. What about size? Is my
organization too small or too large?
The vast majority, by number, of all businesses in the United States are small with
under $5 million in annual sales. These are the companies who may not be able to afford a
staff of efficiency experts to maintain a competitive position. CRP's are great because
they don't have to be big to be successful. The best of all organizations avail
themselves of the strategies and methods for maintaining a competitive position. They
have continuous improvement programs that contain a cost reduction program element
designed to continually enhance margins and the bottom line. Cost reduction programs
are characteristically:
 | Easy to install |
| Easily structured to provide acceptable returns on the investment |
| Easy to maintain |
| Not subject to going out of date like many faddish management programs |
| Self adapting as the organization and its needs change |
An all too common means of reducing cost is to have a temporary or permanent layoff.
Wall Street has become inured to the idea that when the stock isn't performing, it's time
to announce a reengineering effort with the usual reduction in workforce. Everyone loses
in these scenarios. The layoffs rarely create or sustain a more vital corporate
performance. Morale is devastated and lives are disrupted in ruthless fashion. Reactionary
scenarios like these can be avoided by the proactive and aggressive use of an ongoing cost
reduction program.
12. Nine myths associated
with Cost Reduction Programs:
- Myth: If it will save a lot of money we should just do it no matter what. It
is a mistake to make cost reductions without carefully evaluating the impact against the
criteria that are important to your organization. The end may not justify the means. A
cut may look good for the moment but damage the organization later…as many
corporations have found when they cut too many people in reengineering programs only to
stunt their future growth and profitability.
- Myth: An informal program is just fine. Informal programs usually do generate
some savings but they tend to miss less obvious opportunities. You don't even know
what you're missing. Continuous success comes from well run CRP's that fold into the
culture of the organization and become a natural part of everyone's objectives. Improvements
build on each other to enable unforeseen benefits. Further, formal programs ensure
that opportunities are evaluated for fit with corporate culture and needs.
- Myth: Reducing cost will have a negative impact on quality. A well-run cost
reduction program uses your quality criteria as a measure of what changes can and should
be made. Quality should improve when you remove the costs of low quality as will costs
and margins. Quality and cost reduction programs are synergistic. Continuous
Improvement Programs can combine the elements of cost and quality.
- Myth: Only for-profit organizations will benefit. Even not-for-profit
organizations can greatly benefit from a well run CRP. Organizations that control their
costs are able to use more of their resources to deliver the services that they are
charted to provide. Resource contributors as well as consumers appreciate efficiency.
Expense ratios are often used as one measure of an organization's capability. Organizations
of all kinds that use CRP's are generally more efficient than those that do not. Use
a CRP to make sure your organization is not-for-profit on purpose.
- Myth: Only large companies will benefit. CRP's are ideal for smaller
organizations that do not have the staffing to implement more pervasive and dramatic
systematic change systems. CRP's are a great way to start organizational improvement.
- Myth: CRP's cost a lot. The reality is that they are self-funding. Savings
generated by the program quickly exceed costs and pay dividends.
- Myth: CRP's only work for manufacturing companies. Any operation that has an
expense structure can benefit from a CRP. They work everywhere where the participants
and stakeholders can accept them.
- Myth: Programs have to be complex: Even the largest organizations can benefit
from simple CRP's. Programs are tailored to the culture, size, and complexity of the
organization.
- Myth: Programs must be fully installed before they produce results: Not
infrequently, the program will be started with a core team or representatives from
selected departments and skills. That team will focus on target areas and refine the
process while creating savings. Once the process is working, they can help lead the
broader effort. A trial program can be a great way to start on the road to success.
Next page
• Home • Cost Reduction • Cost Reduction Example • Profit Improvement Example • PIP Overview • Cost Reduction & Profit Improvement •
(c) 1998 - 2008 Steven C. Martin, Business Solutions. All
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