Difficult Economy – "Increase profitability by driving your investment in continuous improvement"
never fails As soon as the economy takes a downward turn and annual revenue projections are lowered, the first place, after lowering headcount projections, companies look to reduce operating costs is employee development initiatives. I can’t tell you how often during my 20-plus years of leadership, I’ve been challenged by executive leaders to reduce employee training and development dollars for my department or division. And every time I’m commissioned with such an extravagant request, I brace myself for battle.
Do you need to reduce your operating costs? Increase your employee development spending!
Don’t get me wrong, I don’t like confrontation! In fact, on most topics, I prefer to look for compromising alternatives. But I strongly believe in the value of continuous employee education and development. So when it comes to lowering the costs required for development initiatives, my strong convictions often make me seek out the latest advances in corporate battle gear. So, let the jousting begin!
In a desperate search to reduce operating costs, top executives are looking for ways to reduce personnel expenses. If you don’t reduce the number of employees, significantly reduce your current rate of growth. Of course, top executives target other budget categories, but staff generally have the most influence on a company’s operating expenses, particularly in large, production-oriented businesses.
But, this is where friction occurs most often. Unlike top executives, middle managers are constantly pushing for additional resources. They never seem to have enough employees to meet the demands of the business. Therefore, your motivation is to maintain current staffing levels, while justifying the need for additional resources. As a result, downsizing requests are often met with resistance from middle management. Therefore, to avoid downsizing, managers often sacrifice budgeted money allocated to other areas, particularly employee development. When that happens, the entire business suffers!
An investment of $80,000 generated a return of $200,000!
Lauren, a contact center manager for a growing manufacturing company, was asked by the department vice president to lower her spending forecast for the next budget year. His vice president explained: “Although we continue to achieve significant growth, our average sales have decreased slightly for the third consecutive quarter. This is mainly due to fluctuating trends in consumer purchases. So, to ensure that we meet our earnings projections for next year, our combined operating budget needs to be reduced by $1 million, so I’m looking at $100,000 of that coming from their contact center budget.” Without hesitation, Lauren’s VP said, “I see you forecast $80k in employee development initiatives. Reduce that and you’ll only have to reduce your headcount projection by one full-time employee (FTE) to hit the target.”
It seems so simple, right? Wrong! And here’s why!
Like most department leaders, Lauren was asked to further cut her budget forecast, which she already considered aggressively tight. Realizing that she was on the hook for $100,000 in cuts and that her employee development money was at risk, Lauren had to get creative!
Lauren realized the value of providing continuous development to her employees. She had seen favorable results in the past, particularly with members of her leadership team. But now, she was faced with a difficult dilemma. She reduces her staffing forecast by three FTEs (equivalent to $120K) or postpones her employee development initiatives for a full year. With the exception of headcount, which contributed the majority of its annual operating expenses, the $80K allocated for employee development stood out like a tall, ugly weed begging to be cut out by the VP of Finance’s financial slingshot. she. And there was no doubt that her vice president was ready to swing!
After intense thought and planning, Lauren presented her revised budget. Lauren’s VP called after reviewing the revisions and said, “I noticed you lowered your headcount growth projection by five FTEs, but kept your employee development allocation of $80,000. How do you propose to handle business growth?” of the next year?” Lauren responded, “My $80,000 allocation will be used to create and implement two employee development programs, one designed to improve process efficiency and the other to improve quality. The efficiency my department will gain after completing our new Our process improvement training programs will allow us to increase productivity by 10% – equivalent to producing two employees.” Lauren went on to say, “In addition, our new quality control program will allow us to reduce data entry errors. data and rework by 15%, which is three more employees.
The economics of continuous improvement!
Lauren’s $80,000 investment in employee development programs resulted in total efficiency gains equal to five FTEs. With an average annual salary of $40,000 per employee, Lauren’s programs generated $200,000 in cost savings (5 FTE x $40,000). but it also reduced Lauren’s annual employee growth rate by five FTEs. In other words, it absorbed new business growth without adding additional employees. Most importantly, the new programs had an extremely positive impact on customer satisfaction and quality assurance rates.
Too often, knee-jerk decisions to reduce operating expenses by delaying or eliminating employee development and incentive programs are met with substantial increases in customer dissatisfaction, declines in product and service quality, as well as trends decline in employee satisfaction and productivity. All of which results in higher operating costs and lower profits.
Unfortunately, many companies do a poor job of anticipating these additional costs, and an even worse job of measuring them. The true risk of your financial impact is often overlooked during the budget planning and approval stages. But one thing is for sure; the negative impact eventually shows up in the bottom line.
For companies to truly realize their full profit potential, they must stop viewing their employees as marketable financial control devices and start seeing them as the valuable assets that they are. When properly trained, directed and inspired, employees have the potential to save companies far more than they actually cost them. Combine an effective strategic plan with modest investments in employee development and technology, and you’ll find healthy businesses that make sustainable gains in customer satisfaction and retention, as well as profitability.
Companies must focus on continuous improvement to survive in today’s competitive marketplace. If companies control the costs associated with the successful delivery of products and services by seeking constant improvements, they can be both competitive and profitable. As Abe WalkingBear Sanchez puts it, “A business manager who doesn’t focus on improvement becomes a manager at best and a bureaucrat at worst.”
“What top business executives don’t know and how it can hurt their business!”
Therefore, as the current economic climate continues to reverberate in the minds of consumers, businesses will need to become even more efficient, financially savvy and customer-focused in order to:
o Increase new sales
o Increase repeat sales
o Improve cash flow
o Increase customer delight and customer retention levels
o Reduce the cost of doing business (for them and their customers)
Let’s face it…there are many creative ways companies can make a profit. They may cheat employees for their retirement plan or not fully fund the plan… sound familiar? They can also make a profit by scamming customers and suppliers… Can you think of a company?
If you are a business executive or business owner (or aspiring to be) and are serious about increasing your profitability, I encourage you to read our FREE 20-page Special Report titled, “What Top Business Executives they don’t know and how it can hurt their business. This report will help you significantly improve key areas of your business, leading to increased profitability.