It Takes a Leader
Is your perch a branch or a mountaintop? Employ these seven ideas to make your business more competitive in tough times.
- By Pam Mitchell
- Jul 01, 2003
"I don't care how you do it, but I want an across-the-board 10 percent cut in
budgets for the rest of this year." "Sales are down. We have to tighten our
belts. I suggest limiting all travel, software upgrades, and equipment purchases
until business improves. I want to see people working longer hours while we try
to pull out of this slump."
When business gets tough, cutting costs is a logical solution. But how
effective are across-the-board budget cuts? Reduce budgets. Reduce staffing.
Reduce customer service. Each person left is expected to do more work with fewer
resources. Has history proven this is the pathway to long-term success?
Certainly, any organization that has become fat with cellulitic layers of
mediocre middle management needs to shed a few pounds. But are we slashing the
fat or the lean? A downturn in business is the time to assess our line-of-sight.
Are we standing on a single branch looking down at the minutia? Or are we
standing on a nearby mountain taking in the total view? Are we positioning
ourselves for growth and survival, or for mediocrity and a slow, painful death
When the economy is slow, too many companies position themselves for the
death spiral. First, employees begin to pay more attention to slashing budgets
and worrying about the next layoff than to creating value for their customers.
Second, the work environment changes. Some companies count on the threat of
layoffs to keep people at the grind, but the most talented employees will seek
and find employment elsewhere.
What are we left with? Losing teams are comprised of demoralized employees
and fleeing customers. Inventories are cut in the wrong areas. Lead-times
lengthen. Territories are consolidated, and sales service diminishes.
Customer-service people become overworked and forget to follow up on critical
items, or they are too busy at the coffee machine talking about the heinous
things going on in the organization.
This is typical of what can happen to industries in an economic downturn, but
your company can be different. You can take advantage of mistakes that your
competitors are making right now. You can emerge from the current economic
slowdown as the value leader in your marketplace while your competitors are
Maintaining Your Focus
Here are some strategies to maintain your focus
and use an economic slowdown to capture additional market share.
1. Talk to your customers and prospects. Find out what they value most
in a business partnership and give it to them. A leading retail logistics
company holds a Store Planning Symposium each year to listen to its customers
and prospects, trying to figure out how they can better solve their problems.
The symposium and their partnership attitude position this firm as a leader in
2. Create a customer value definition statement based on your
research. Post it in your organization. Make sure everyone knows what the
customers value and what his role is to deliver value to those customers. A
successful food ingredients distributor knows its customers value fresh
ingredients delivered on the exact day they are needed. The company tracks
on-time delivery and post the results around the building and on its Web site.
Everyone in the organization knows how critical that number is.
3. Flow-chart your major business processes. Ask those closest to the
process: What part of these processes truly creates customer value? What part is
pure fat? Include direct expenses and overhead in your analysis. Eliminate the
4. The leader determines the focus in the organization. If the leader
focuses on minutiae such as expense reports, managers will do the same. If the
leader is talking about the big picture such as her value proposition, employees
will do the same.
5. Create a formal two-way communication system in the company. The
people closest to a problem are always the best ones to solve it. Few will share
their ideas with top management unless requested to do so. Make them feel
comfortable sharing their ideas. Give them the tools to implement their
6. Do not lay off employees who work themselves out of a job. Reward
them with a raise, a promotion, or a bonus. Once there is something in it for
them, you will see many more cost reduction ideas.
7. Know what business you are losing and why. Keep a database. Use
this information to refine your value proposition. The biggest mistake managers
make is basing their decisions on what business they are winning.
A Case Study in Failure
One job shop stopped production on a regular
basis to change jobs for rush orders. Machine setup costs were a large
percentage of the total cost. The problem was that no one was paying for the
extra setup. It was done in the name of customer satisfaction. Once the rush job
was complete, they had to reset the first job--so two jobs required three
The supplier acquired a reputation for being the "go to" company when one
needed a rush job. This company received more and more "rush" work. They
continued to charge the third setup to overhead. Overhead costs grew as the
number of rush jobs grew. The supplier had to increase the percentage of
overhead applied to each new quote. It began losing standard lead-time work
because its price (overhead) was too high.
The harder the company tried to provide excellent customer service, the more
jobs it lost on price. The more jobs it lost, the lower its utilization rates
went, further increasing costs. The problem was that the marketplace was going
to lower-cost shops for standard lead-time work. The job shop had priced itself
out of the market under the guise of excellent service, because it did not truly
understand what its customers valued. The managers reasoned the competition must
have lower direct labor costs. (However, direct labor is generally only 10 to 30
percent of one's cost structure. Therefore, if a competitor's direct labor costs
are 20 percent lower, the total impact is only 2 to 6 percent in the final
This job shop misread the customer value definition because it looked only at
the business it was winning. It failed to look at the business it was losing and
What is your line-of-sight? Are you standing on a branch looking at the
minutia of your business? Or are you standing on the mountaintop taking in the
total picture? Do you seek the opinions and solutions from the people closest to
the customer and to the job?
The bottom line is that market leaders throughout the history of free
enterprise systems are not those companies that slash budgets the best, but
those companies that provide the most value to their customers. Any manager can
issue an edict to cut spending. Any manager can make decisions based on the
business he or she currently has. It takes a leader to navigate the company
through the maze of an economic downturn and emerge as the value leader in the
This article originally appeared in the July 2003 issue of Occupational Health & Safety.