Cost Cutting - Scalpel or Chainsaw for Turnaround Success?

Is your company still in the cost cutting mode? I don’t mean are you still concerned about controlling costs, since that should be an ongoing mantra in good times as well as bad. I mean, are you focused on cutting costs to continue to survive?

By now you will have cut out the obvious excesses and are down to the hard choices. What will you use for turnaround success, the chainsaw method or the scalpel?

The chainsaw method sees this as a relatively simple solution to a tough problem. Is there a plan? Yes! Generally it is a simple one. Either take a percentage of cost out of all functions or look at the largest expenditures and cut them. Large “chunks” of cost are cut away and the rest stand as it may. In terms of a quick fix, this method works. Costs are very quickly reduced. However, generally there are severe consequences for both the short term and long term.

In the short term, there is chaos since the cuts have been done without a fully developed plan. What is left may not be able to function effectively or at all due to the elements that have been removed. Employees with specific skills have been lost and others with lesser or without those skills are required to take their place. Processes will not function efficiently. In the long term, the company may have cut the resources and programs that are going to be required to turn the company around and enable it to survive in the upturn. Once the people or the initiatives are lost, regaining them will be very difficult. It is also a major challenge to ignite the organization to achieve and repair the damage to the culture. If your company has used the chainsaw method, you will be able to add many other consequences to the list from your personal experience.

The scalpel method starts with the business plan which reflects the current pressures from the economy but also capitalizes on the core competencies and the requirements for longer term success. The total cost reduction target is identified and employees throughout the organization participate in identifying areas that can be cut, postponed or done more cost effectively to reach that target. In doing this, the consequences of how the company will function post the cuts are reviewed and plans made. This much more orderly cost cutting process not only reaches the targets in the short term, it also sets the company up for success longer term.

Both of these methods benefit from expert assistance. The chainsaw method needs analysis and solutions as to how to recover from the damage done in getting to the lower cost level. The scalpel method benefits from help in the planning and implementation process.


As a turnaround expert, I have worked with companies and both methods. In the chainsaw method, I am brought in after the fact to resurrect the company and help breathe life back into it. Additional help is generally required to execute the plans, since key company people have either been laid off or quit. This can be expensive. In the scalpel method, I am brought into analyze the challenges and the opportunities in reaching the cost saving goals and then create and execute the business plan that delivers. This is a much more productive exercise.

If your company has used the chainsaw method, contact me. I can help you pull out of the consequences. If your company still requires additional cost savings, contact me and I can help you use your scalpel.

Thanks,

John


John Maver
President
Maver Management Group
(925) 648-7561
Maver Management

Company Turnaround – Not a Children’s Story

Many of us remember the fairy tale of the Little Red Hen. This story is known not only to our USA readers but many of you around the world, who are reading these articles. Little Red Hen lived on a farm with her five chicks. On this farm, there also lived a dog, a cat and a duck, along with a number of other animals. Red found some seeds and then asked for help in planting, harvesting, grinding and baking but got the response “Not I” from all. However, all were around to eat the bread when it came out of the oven. They didn’t want to do the work but to share in the rewards.

To some extent, that is the way it used to be in business too. Many employees were focused on their own department and responsibilities and built larger and larger organizations. Teamwork and extended productivity were only a subject for meetings and discussion and not actually practiced. However, the employees were there to share in the bonuses and promotions as the business grew.

NO LONGER. Turnaround for companies isn’t a children’s’ story but the basic idea still works.

Here is how the story could go today and why bringing in an expert on turnaround is such a smart idea before it is too late and you are out of business. It is told in the form of a children’s story to make the point without setting up defensiveness in the readers.

The financial pressures on the farm (this could be any business, but for purposes of this story it is a farm) were getting more and more severe. Prices of eggs, the output of the farm, had risen but were now at a level that further increases were not possible. Demand was falling. Profitability plunged. Much of the days’ activities in all departments centered on what the farm was going to do. There were going to be severe budget cutbacks. Some would have to lose their jobs and.

The farmer, who was the CEO of the farm, had pressures from all around him. He had a lot of ideas given by the Board of Directors, the news, the executives and even his wife. All the ideas involved slashing costs in one way or another. In an attempt to meet the profit targets, which hadn’t changed despite the worsening economy, since there were shareholders and the bank and the other creditors and etc, the CEO give direction to his executives to reduce spending by 15% across the board and start laying off employees.

While this quickly cut some costs, the result wasn’t what had been expected as other costs had to increase to compensate for some of the lost activities. It also caused chaos in the company since there was no overall plan. Almost every process was affected in some way and productivity slowed dramatically.

That led to the need for further cuts in order to make the now reduced targets. The analysts on Wall Street had pulled their investments so the farm’s stock price plunged. Not only were bonuses eliminated, pay cuts were initiated. The layoffs continued and many seasoned farm employees were let go. As you would expect, revenue fell again and again. Soon cash flow dried up. Does this sound familiar as a real life story?

Since this is a fairy tale and not real life, there is a happy ending to the story. In real life, most of these companies would be put out of business.

The Little Red Hen convinced the farmer to bring in a turnaround expert. Not one of those expensive large consulting firms but one that had the expertise and a track record of success. The turnaround expert quickly analyzed the situation, pulled the CEO and the executive team together and led them in creating a business plan that was based on their core competencies and focused the remaining resources on the greatest opportunities.

Unlike in the earlier story where no one would help, here everyone had a responsibility and accountability for the results in their section. The plans were greeted with enthusiasm and soon the business had turned around and like in the children’s stories, all lived happily ever after. Well, perhaps not happily ever after since even in children’s stories there is the realism. If you don’t keep executing the right plan, you can fall back into trouble

Please do not think that turnaround work and plan was that simple to define and execute. It never is but with the right guidance and expertise your company can be turned around and you too can deliver a happier ending. The key is to get the right plan and get some help to turn the business around now. If you wait it will be too late.

If you don’t already have a turnaround expert, contact us and let us help. We have saved a number of “farms” and businesses too.

Thanks.

John


John Maver
President
Maver Management Group
(925) 648-7561
Maver Management

Turnaround – Are going to get your share of the recovery?

The economy is beginning to turn upward and while there are still major obstacles to its health, there are positive signs and consumer confidence is starting to return.

The all important question for you is “will you be participating?”

Will your company be participating? Have you positioned yourself and your company to get a share of the upturn or will the potential business pass you by?

Here are some questions to ask yourself to see if you are ready:

1. Have we focused solely on cost cutting in order to survive and if so have we actually undermined the opportunity to recover? Many answer this question quickly with a no and then upon further review find they are incorrect and are in trouble.

2. Have we maintained the strength of our core competencies through this downturn? Do we actually know, outside of the executive team, what our core competencies are?

3. Do we have the cash availability to fund the inventory increases that are going to be needed as we start to ramp up production?

4. Do we have the cash reserves to cover the short term increase in accounts receivable that will happen with the new sales? This recognizes that even though some customers and clients will pay within terms, we still will have increased AR. It also recognizes that some clients are going to be cash strapped themselves until they get their cash flow flowing and will delay payment to us and other suppliers.

5. Do we have relevant business goals that make sense in today’s environment?

6. Have we kept the right talent in our human capital to succeed? What is missing and where and when will we get it?

7. Have we upgraded to take advantage of the large, very qualified talent pool that is available and their willingness to accept more modest compensation?

8. Do we have a business plan that is actionable and known throughout the organization?

9. Are our business goals clear and communicated to all employees so that they can participate in driving the business ahead/

10. Have we identified the key issues facing the company in order to participate in the economic upturn and do we have a specific plan in place to address each issue?

11. Is our business progress starting to trend up and can we see means of accelerating our progress?

12. Do we have a clear customer focus across the organization? Are we committed to customer satisfaction and possibly delight? Customers are far more choosy now.

If you can answer all of these questions in the affirmative and have the facts to back them up then you are ready to take advantage of the prospective upturn and will be in a position of strength. If you have answered some or all of the questions in the negative, you may be in a great deal of trouble and need help.

Contact us and let us help you. We have helped many others be ready to get more than their fair share of the business to come.

Thanks

John


John Maver
President
Maver Management Group
(925) 648-7561
Maver Management