Thursday, December 15, 2005

In the past 30 years, I have learned a number of basic lessons while working with many large and small, successful and troubled organizations. I believe these lessons often can make the fundamental difference between business success and failure. Please read the following and pass it along to others who may find it helpful.

How Do You Cut Costs After You Have Cut to the Bone? The Top 30 Ways to Reduce Expense

By Fred Leeb
Many companies today are facing extremely tough financial and operating conditions that are only likely to get more difficult. Even more resources will be required in the future to compete for customers, employees, vendors, joint venture partners, business partners, investors, lenders, publicity, and on and on. The purpose of this article is to provide assistance for companies that already have gone through their cost structure and have cut all the fat out but recognize they must find a way to do much more to enable them to grow and be successful. 

The first step is to recognize that further significant cost cuts demand strategic thinking, teamwork, and a sound business plan, the same process required for a growth plan. Otherwise, further cuts will weaken the organization and are very likely to lead to just more cost cutting later on. 

Cost cuts should be a means of strengthening the organization for the future, not just buying time. An experienced consultant can provide the valuable perspectives to help make prudent decisions, the manpower to get the job done with a sense of urgency at a critical juncture, the new ideas and creativity from understanding how many other organizations have faced similar issues and the objectivity needed to counter entrenched vested interests. 

In the list below, the most successful cost reduction methods are listed first and the least preferred (but the most often used methods) are listed last:
  1. Refocus and reduce cost through strategic planning (the most successful method for cost reduction): rank each department or profit center in terms of its current and longer term value (basically, calculate the program’s future return on investment); cut the lowest-ranked areas.
  2. Increase quality to reduce rework, scrap and administrative cost
  3. Take a fresh look at the entire expense structure by utilizing zero base budgeting and/or activity based accounting.
  4. Tap into new ideas from employees--give them an opportunity to provide information without fear of being identified, patronized, or criticized--have a consultant ask for their ideas respectfully and confidentially.
  5. Take advantage of your difficult financial circumstances to renegotiate leases or debt service payments (reduce or defer payments, extend terms, return equipment, request interest-only payments, etc.).
  6. Negotiate feasible monthly payment terms with vendors to eliminate interest and penalties on past due amounts (as part of a sound overall business plan)
  7. Prepare breakeven analyses, take a hard look at all opportunities—revenue (volume, price and mix), variable cost and fixed cost.
  8. Develop a longer term view by preparing contingency plans (e.g., by developing alternative scenarios of 5%, 10% and 15% cuts in operations).
  9. Pay down debt or reduce lease costs by selling off real estate, equipment and/or other underutilized assets.
  10. Gain efficiencies and economies of scale: eliminate excess capacity and duplication of services, expand through vertical or horizontal integration to gain synergies, and gain access to new geographic areas.
  11. Bring more work in- house as opposed to utilizing more expensive outside vendors or outsource more work to less expensive outside vendors, depending on the circumstances.
  12. Centralize or decentralize overhead functions, depending on the circumstances.
  13. Combine with other organizations to pool purchasing power and negotiate lower costs from suppliers.
  14. Reduce “fixed costs” by utilizing the advice of outside experts in areas such as health insurance, phones, office rent, property tax, vehicles, information technology, outside accounting fees and janitorial fees.
  15. Obtain better computer systems to reduce the personnel cost of financial and operational reporting.
  16. Target marketing and advertising dollars most efficiently by preparing demographic analyses.
  17. Keep personnel costs in line with the competition by utilizing salary, wage and benefit analyses available from outside sources.
  18. Generate additional value and reduce expense by implementing incentive compensation systems, instead of using flat salaries and wages, when appropriate.
  19. Reduce administrative cost by listing all reports and then eliminating all those that are unnecessary.
  20. Reduce significant costs by tracking (e.g., posting graphs and monitoring) key operating statistics as appropriate (on a daily, weekly or monthly basis).
  21. Incorporate the best practices of competitors and other similar organizations to reduce cost.
  22. Reduce managerial personnel cost by expanding the number of direct reports per manager (flattening the organization).
  23. Reduce the number and length of business meetings and the number of attendees at each meeting.
  24. Require all employees to report how they utilized their time (the tasks they completed), on an hourly basis, for one week each quarter.
Least Preferred Cost Reduction Methods
  1. Increase employee oversight and discipline by requiring all employees to utilize a time clock.
  2. Freeze salaries, decrease employee benefits, increase overtime for exempt employees, postpone hiring, increase reliance on contract employees and part-time staff who are not provided with benefits.
  3. Cut all capital expenditures, repairs and maintenance, employee training, new programming, marketing and consulting fees.
  4. Require the managers of all departments to devise their own means to reduce expense by a certain percentage or dollar amount.
  5. Require that all expenses be reduced by a specific percentage across the board.
  6. Wait for a miracle
The Bottom Line

As stated previously, cost cuts should be a means of strengthening the company for the future. An experienced consultant can provide:
  • Valuable perspectives to help make a prudent decision,
  • Manpower to get the job done with a sense of urgency at a critical juncture ,
  • New ideas and creativity from understanding how other organizations have faced similar issues,
  • Objectivity needed to get past roadblocks and vested interests and gain the most value for the organization as a whole, and the
  • Confidentiality for your employees so they can be forthcoming with many new ideas and procedures without fear of criticism or retribution.
The best leaders are those constantly looking for good ideas everywhere and learning from others.

Thursday, September 15, 2005

Do You Really Want to Do Everything Yourself

By Fred Leeb

As the head of the organization, you have proven the capability to solve whatever problem comes up.  You have risen up through the ranks by making your boss look good, by getting the most out of your teammates and by always looking for new ideas.  On your way up, you learned a lot from others because you recognized they had good ideas of their own and lots of experience for you to draw upon.  You even complained once in a while about how you did all the work while your boss just had to sit back and watch you grow.  In fact, your only wish was for your boss to stay out of your way.

Now that you are in charge, why does everything seem different?
  • Why are you working more hours than any of your employees? 
  • Why must you try to solve everyone’s problems for them? 
  • Why are you the only one to understand the urgency of the situation? 
  • Why are you the only one living up to the commitments you have made?
  • Why must you be everywhere at once? 
  • Why must you rely only on yourself to solve difficult problems?
  • Why is the entire burden of success on your shoulders?

The answer is that you have trained your employees to rely on you.  They are watching you very carefully and are internalizing your actions.  If you don’t care about the team, they won’t care about the team.  If you don’t listen to your advisors, they won’t listen to their supervisors.  If they think that you only want to solve a problem your way, they won’t even try to do it differently and will wait for you to step in and save the day.  Even worse, many employees may actually be behaving counterproductively.  They may be vocally resentful or pulling against each other.  Since you are the leader, nobody but you can change the personality of the organization that you have established.  If you allow this behavior to go unchecked it will result in tremendous costs to your organization and much greater risks in the future. 

In addition, if you are taking on the most difficult parts of your employees’ jobs, you might as well also cut the number of your employees and/or reduce their pay.  If you do that, however, you should expect that your profitability will decline.  You know that if you really could do their jobs yourself you wouldn’t have hired them in the first place. 

Instead, shouldn’t you encourage them to suggest new ideas, take on new commitments, and make their own ideas work so they can then gain the confidence they need to take on even more responsibility?  Won’t your organization be much stronger when everyone is contributing and you are sharing the burden with them rather than keeping it all on your own shoulders?  Your employees are relying on you to help them achieve their greatest potential, not to do their job.

You may be saying, “OK, OK, I know that but it’s much easier said than done.”  That’s exactly right.  That’s why you, as head of the organization, should be asking, “What will be my ‘bang for the buck’ and who should I rely on to help me achieve success?”  You are actually the most important link in the chain for the very reason that you are the head of the organization.  Without your effective leadership, it is almost impossible for your employees to make the organization successful.  In fact, the worst case scenario occurs when the president is the organization’s biggest enemy, he/she doesn’t even realize it, and there is no other catalyst for change.  With your effective leadership, however, your organization can achieve greatness.

But who can you rely on for new ideas and to prevent stagnation?  Fortunately, you already have invested in a circle of professionals—your banker, attorney, accountant and business consultant--who are now ready and able to give you tremendous value at relatively low cost.  This is because they already have worked on your transactions, business issues and financials.  Don’t let this knowledge go to waste.  They already know:

·         The additional perspectives you need to both stimulate change and make prudent decisions
·         The resources you have available and your operating constraints
·         What many other organizations have done to be successful
·         How to avoid the many pitfalls experienced by others
·         The personalities of your leaders and the history of your organization

The best leaders are those constantly looking for good ideas everywhere and learning from others, just like you did when you were going up the ranks. 

The Bottom Line

A well-functioning team almost always beats the individual player.  The team, however, is almost totally dependent on its leader.  The best leaders stay the best by utilizing their own team of professionals, consisting of their banker, attorney, accountant and business consultant, as tools to help them be successful.  Often, these professionals can be used very effectively at relatively low cost because they already know about the unique aspects of your business.  Their knowledge is from working through past transactions, accounting reviews and business analyses.  Your organization is depending on you to utilize these valuable assets (that you already have paid for) to make the team successful.   The return will be tremendous.

Tuesday, January 4, 2005

Silverdome site still up in air - Detroit - UrbanPlanet, Posted 1/4/05

[Pontiac City Council examined at least two proposals from developers to purchase the Silverdome, one for $18.5 million and another for $17 million plus 25% of the profits, back in 2005 before the real estate market fell but they decided not to sell. Pontiac officials began soliciting proposals from developers nationwide in 2001 after Detroit Lions officials announced they would be leaving the Silverdome to play football at Ford Field in downtown Detroit. The Lions paid the city of Pontiac $26.25 million to break their lease and almost $1 million in service fees the team had been withholding.]

Silverdome site still up in air - Detroit - UrbanPlanet

By Jennifer Chambers/The Detroit News
"...John Graham has lived in Pontiac for 82 years and said it is time for city leaders to make a decision on the site and start generating tax revenue for the community.

"It's been a very long time to me. They seem to keep it busy with car races, and now they are (proposing) having a Super Bowl practice," Graham said. "I'd like to see something that could produce income so our taxes can come down."

Schostak wants to turn the Silverdome building into a Pontiac Towne Center that is part industrial park and part retail center, with six restaurants and a recreation center. The dome would be removed and rebuilt to accommodate a 300-room hotel.

Schostak's cash offer for the land is $18.5 million. Officials say it will generate 7,000 new jobs.

Etkin Equities wants to demolish the Silverdome and develop 20-22 buildings over 1.5 million square feet of space for a high-tech research office park with a small amount of space for retail stores and restaurants.

The company's cash offer for the property is $17 million, with development costs expected to be $200 million. The project is expected to create 6,000 jobs.

The proposal includes sharing 25 percent of profits from the property with the city. Curtis Burstein, Etkin's executive vice president, said project consultants have estimated Pontiac's share of the profits at $5 million.

The offer also includes a $1 million bonus if 80 percent of the property is put into use within the first five years of the development.

Oakland County Executive L. Brooks Patterson said he would like to see city officials make a decision soon to generate tax money for the city and county and bring jobs into the area.

"It's probably the most valuable property in Oakland County, and it's off the tax rolls." Patterson said. "They have a lot of cooks in the kitchen. They need to make a decision and get on with it."

Analysts have said the site -- situated near Oakland County's Automation Alley -- is worth $350,000 an acre, or almost $50 million, if the Silverdome is knocked down.

Pontiac officials began soliciting proposals from developers nationwide in 2001 after Detroit Lions officials announced they would be leaving the Silverdome to play football at Ford Field in downtown Detroit. The Lions paid the city of Pontiac $26.25 million to break their lease and almost $1 million in service fees the team had been withholding.

The Silverdome hasn't given Pontiac the financial boost predicted when it opened in 1975."