I have been in retail for the past 35 years, and in all that time I cannot remember one year when expense control wasn’t a hot button. I have seen it all, from broad-stroke campaigns (“everybody shave 10%”), to rifle-shot outsourcings, to benchmarking, to zero-based budgeting, to you-name-it. Companies even think up big slogans to publicize their cost control efforts. So, one would think that we would have mastered the expense control art by now. Except, of course, we obviously haven’t. Why not?
In my travels I often ask employees of all ranks to give me their personal estimate of what percent of their time is spent doing useless tasks that don’t add value to their company. The answers cluster around the 20% number, indicating that our workplaces have a natural propensity to waste about 20% of our resources. This strangely parallels the findings of Dan Ariely, whose research demonstrates that most people are moderately dishonest (in one test given to over 40,000 subjects, 70% of the people cheated by a modest factor). It is almost as if a tolerance for certain amount of wastage is genetically coded into us.
In football, the Red Zone is the last 20% of the playing field required to cross in order to score a touchdown. This is the toughest territory to conquer, and teams have to come up with special strategies to be successful here. That’s why I call expense control playing in the red zone, because normal behavior won’t produce the results you want. But here are some ways to tip the scales in your favor:
1) Walk the Walk: Nothing is more powerful to controlling expense than the example of a company’s leadership. Talking the talk is nice, but walking the walk is what wins hearts and minds. When on company business, fly coach. Stay in budget hotels. No extravagant entertaining. People emulate examples much more readily than they succumb to exhortations.
2) It’s All About Allocation: Don’t waste your time debating if a spending idea is bad or good. Instead, make all spending requests compete with each other. When doing your expense budgeting, ask if it is preferable to spend the money this way, or another? And the choices need not be in the same time period. The important thing is to know that you are not saying yes of no to spending, but rather simply to how the total approved amount of spending is to be allocated.
3) Benchmark Yourself: Traditional benchmarking doesn’t work. No two organizations are ever completely compatible, markets differ, products differ, strategies differ, and accounting differs. But internal benchmarking is great, because then all the excuses fall away. Take the bottom half of your performers and ask yourself how much you would improve if you could just get your bottom half to come up to average? Another way to benchmark yourself is across time periods. This week versus last week or this year versus last year. Productivity in the economy increases roughly 2% per year. Are your functions keeping pace? Inspect what you expect, the old saying goes.
4) The Power of Intention: Jim Collins called them BHAG’s (big hairy audacious goals). Peter Drucker espoused what he called “purposeful abandonment”. I like the phrase “Power of Intention”, which I borrowed from the movie American Hustle. It captures the notion that you commit to a goal before you know how it will be accomplished. The truth is, even as people admit the presence of wasteful activities, they are reluctant to give them up for fear that their jobs will become casualties of an expense control campaign. You, as a leader, must plant the expense control stake and defend it against all assaults. Commit courageously, and then execute intelligently. Rank all spending by ROI, then be relentless in pruning the low-productivity activities.
5) Sacred Cow Stew on the Menu Tonight: Nothing produces acceptance of aggressive expense control quite like the notion that all options are on the table. Employees will feel significantly more committed to the process if they see CEO pet projects being sacrificed. Shared misery evokes solidarity, while isolated misery provokes retaliation. It’s that simple.
No treatise on expense control would be complete without an examination of the dark side — that is, the things that conspire to defeat your efforts. Here are the top three villains, and the best ways to counteract them:
1) The Pitfall of “Common Wisdom”: Circumstances change quickly, and not everything that you think is true is really true. But nothing causes opinions to solidify quite as well as a good old-fashioned expense control campaign, because now we have to justify our existence. Man the battle stations! How to avoid this? Instead of trying to win debates, do some really insightful testing. It doesn’t take too much imagination to figure out how to do this, and it is a wonderful way to minimize risk and eliminate resistance.
2) The Premature “Mission Accomplished” Declaration: Winston Churchill observed that if you are going through hell, keep going. This surely applies to expense control. But the bad news is that the best expense control campaigns are the ones that never end. Good expense control must be here to stay — get used to it. Better yet, embrace it.
3) My End of the Boat Isn’t Sinking: The seeds of an organization’s demise are often sown during times of prosperity. We come to believe that God is on our side, so we save nothing for a rainy day. But in fact the best time for expense control is when it is still a choice rather than a requirement. Build your habit of frugality while you can still afford the occasional mistake.
Philosophers say that life is about the journey, not the destination. Think of expense control the same way, and before long you will find yourself celebrating in the end zone. But of course, then comes the next kickoff and it all starts over again. Play ball!