Our research shows that half of all employees feel that the management of their organization is doing a poor job of controlling costs. Manufacturers, for example, are losing money every day by:
- Wasting energy (e.g., electricity, natural gas, and heating oil);
- Using inefficient operating methods;
- Duplicating the same work in different parts of the organization; and
- Producing too much scrap that can''t be sold or recycled.
In today's challenging economic environment, this wasting of money is leading to poor returns for stockholders, as well as unnecessary employee layoffs.
A major reason that cost reduction is particularly important today is rising energy costs. In recent weeks, the newspapers have been filled with reports of declining corporate earnings, not just in California, due to increased energy costs. Gasoline prices have skyrocketed and are expected to reach $2.00 per gallon this summer. An energy crisis is not "coming eventually;" it is here NOW!
WHAT CAN BE DONE TO REDUCE COSTS?
1) Involve Employees in Reducing Energy Costs
Given the chance, employees at the grass-roots level of organizations can help their companies amass significant savings by identifying wasted energy. In the energy crisis of the late 70's, companies such as Allied Chemical, Coca-Cola, General Foods, and the City of Stamford, CT saved millions of dollars by implementing the energy-saving ideas of their employees. Simple ideas such as turning off lights and reducing the settings of thermostats were just the tip of the iceberg.
The energy saving programs that have been most effective involve senior management, elevate employee awareness, and motivate employees to generate useful ideas. They then implement the ideas.
2) Practice Open Book Management
Many have advocated the value of opening up the corporate books so that employees can gain a realistic understanding of the organization's revenue. However, it is equally important that employees see the expense side of the ledger. Armed with this knowledge they will have a much better understanding of what costs need to be reduced as well as the importance of doing so. Most employees actually have more control of the expenses than they do of the revenue.
3) Eliminate Operating Inefficiencies
Our research has found that about half of employees feel their departments are run inefficiently. They feel that time, energy, and materials are often wasted. Each department should sit down with employees on a regular basis to identify key inefficiencies and potential solutions. Just because "its always been done that way" does not mean it''s the best way to perform the work.
4) Benchmark Against Other Organizations
To gain a better handle on expenses, it is important for organizations to know how their spending habits compare to those of similar organizations. For example, cross-organizational studies can provide valuable insights about sufficient staffing levels and how to reduce spending on salaries, raw materials, professional services, and supplies.
While competitors may be reluctant to divulge this information, professional associations can often generate the data. Many of them conduct surveys of their members and then produce reports that summarize the findings. This approach maintains the anonymity of the organizations that participate in the study. So, before it's too late, think about what your organization should be doing to reduce costs, especially energy costs.
(I am very much interested in your comments about this topic. Please reply with your comments to Bruce@discoverysurveys.com .)
